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The  National  Social  Science  Series 

Edited   by  Frank  L.   McVey,  Ph.D.,  LL.D., 
President  of  the  University  of  North  Dakota 

Now  Ready 

GOVERNMENT  FINANCE  IN  THE  UNITED 
STATES.  Carl  C.  Plehn,  Professor  of  Finance  in 
the  University  of  California 

THE  COST  OF  LIVING.  Walter  E.  Clark,  Pro- 
fessor and  Head  of  the  Department  of  Political 
Science  in  the  College  of  the  City  of  New  York 

TRUST  AND  COMPETITION.  John  F.  Crowell, 
Associate   Editor  of  the  Wall  Street  Journal 

MONEY.  William  A.  Scott,  Director  of  the  Course 
in  Commerce,  and  Professor  of  Political  Economy, 
University  of  Wisconsin 

TAXATION.  C.  B.  Fillebrown,  President  Massa- 
chusetts Single  Tax  League,  Author  oi  A  B  C  of 
Taxation 

THE  FAMILY  AND  SOCIETY.  John  M.  Gilette, 
Professor  of  Sociology,  University  of  North  Dakota 

BANKING.     William  A.  Scott. 

THE  CAUSE  AND  CURE  OF  CRIME.  Charles  R. 
Henderson,  late  Professor  of  Sociology  in  the  Uni- 
versity of  Chicago 

In  Preparation 

PROPERTY  AND  SOCIETY.     A.  A.  Bruce. 
THE  AMERICAN  CITY.     Henry  C.  Wright 
STATISTICS.     W.  B.  Bailey 
BASIS  OF  COMMERCE.     E.  V.  Robinson 
WOMEN   WORKERS   AND    SOCIETY.    Annie   M. 

McLean 
THE     NEWSPAPER    AS     A     SOCIAL     FACTOR. 

Allan   D.  Albert 
THE     STRUGGLE     FOR    LAND     IN     AMERICA. 

Charles  W.  Holman 

Each,  Fifty  Cents  Net 

A.  C.  McCLURG  &  CO.,  PUBLISHERS.  CHICAGO 


Government  Finance 

IN  THE  UNITED  STATES 


BY 


Carl  C.  Plehn,  Ph.D.,  LL.D. 

Professor  of  Finance  in  the  University  of  California 


CHICAGO 

A.  C.  McCLURG  &  CO. 

1915 

3  ^Z.a^ 


Copyright 

A.  C.  McClurg  &  Co. 

1915 


Published  September,   1915 


Copyrighted  in  Great  Britain 


W.  F.  HALL  PRINTING  COMPANY,  CHICAGO 


EDITOR'S  PREFACE 


C! 


TN  the  publication  of  Dr.  Plehn's  book  on  Gov- 
ernment Finance,  The  National  Social  Science 
Series   has  presented   a   somewhat   rounded-out 
discussion  of  financial  topics.     Professor  Scott's 
'^j  books  on    Money   and   Banking   and   Mr.   Fille- 
-  brown's  book  on  Taxation  furnish  the  first  three, 

and  Dr.  Plehn's  book  is  the  fourth. 

*,       This  book  deals  with  government  finance,  not 

►    in  a  technical  way,  but  in  broad,  comprehensive 

^  manner  that  will  furnish  a  guide  to  the  reader 

'  who  wants  to  know  something  about  the  methods 

pursued   by   governments   in   the   collection    and 

expenditure  of  money.     The  reputation   of  the 

author  as  an  expert  in  the  field  of  Public  Finance 

is  a  guarantee  of  its  worth  and  value. 

F.  L.  M. 


AUTHOR'S  PREFACE 

'T'HE  aim  of  this  little  book  is  to  describe,  very 
briefly,  what  the  federal,  state,  county,  town, 
and  city  governments  in  the  United  States  are 
doing  that  requires  money,  how  they  spend  the 
money,  where  it  comes  from,  and  what  the  peo- 
ple get  for  it.  We  have  also  tried  to  see  whether 
we  are  ordering  our  public  affairs  well  or  ill. 

We  find  that  government  spending  is  outrun- 
ning government  income.  But  the  things  for 
which  governments  are  spending  money  seem 
for  the  most  part  good.  The  increased  costs 
have,  however,  strained  the  existing  revenue  sys- 
tems to  the  breaking  point.  New  revenues  are 
necessary,  especially  for  the  states,  and  we  have 
ventured  to  recommend  a  state  income  tax. 

Although  this  recommendation  is  our  thesis 
and  runs  throughout  the  book,  we  trust  that  it  is 
not  so  over-emphasized,  as  to  spoil,  for  those 
more  interested  in  the  narrative,  the  picture  we 
have  endeavored,  first  of  all,  to  draw  of  govern- 
ment house-keeping  in  the  United  States. 

Berkeley,  California,  C.  C.  P. 

August,  1915. 


CONTENTS 

PAGE 

Chapter   I.    The  Problem       1 

Chapter  II.     In   General   on   the   Economics   of 
Government  or  the  Evolution  of  Public 

Business 6 

Chapter  III.    The  Difficulties  of  Stating  the  Cost 

of   Government 20 

Chapter  IV.    Our  Federal  Finances 25 

The  History  of  the  Cost  of  War     ....  33 

The    Scope    of    Federal   Activities     ....  37 

Efficiency  and  Economy 40 

The  Equation  of  Receipts  and  Expenditures  41 

Federal   Debt 42 

The  Debts  of  the  Great  Nations:   Table     .     .  44 

Chapter  V.     State  and  Local  Finance,  Exclusive 

of   Municipal 46 

Examples   of   State   Finance 51 

Chapter  VI.     Municipal  Expenditures    ....  66 

City  Expenses 69 

General  Government 69 

Protection   to   Person   and   Property     ...  71 

Highways Id 

Charities l(y 

Education 11 

The  Grovi^th  of  Expenses 79 

Per  Capita  Departmental  Expenses:  Table    .  81 


Contents 


PAGE 

The  Meaning  of  the  Averages 83 

Public  Service  Enterprises 85 

Per    Capita    Governmental    Cost    Payments 

for  All   Purposes,  1912:    Table     ...  86 

Municipal  Outlays 93 

Grand  Total  of  All  Government  Costs     .     .  94 

Chapter  VII.  Efficiency  in  Government  Business  96 

The  Budget 97 

Boards  of  Control 100 

Efficiency  in  Cities 102 

The  Proportion  of  Expenditures  for  Differ- 
ent Purposes 104 

Chapter  VIII.    Public  Borrowing 106 

Chapter  IX.    The  Equation  of  Receipts  and  Ex- 
penditures        116 

The   Federal    Government 118 

Federal  Receipts:   Table 119 

State   Governments 122 

Examples  of  State  Revenue  Systems     .     .     .  123 
Rhode  Island's  State  Revenues,  1913     .     .     .124 

Kentucky's  Revenues,  1911 127 

County    and    Local    Revenues    Other    Than 

Large  Cities 130 

Municipal  Revenue 133 

Conclusion 136 

Tax  Reform  Now  in  Progress 140 

Improved   Administration 141 

Separation  of  State  from  Local  Taxation     .  143 

Classification 146 

Independent    State   Taxes 147 

References 157 

Index 159 


GOVERNMENT  FINANCE 
IN  THE  UNITED  STATES 


GOVERNMENT  FINANCE  IN  THE 
UNITED  STATES 


CHAPTER  I 


THE    PROBLEM 


T^HE  great  problem  of  government  finance  is 
the  wise  expenditure  of  the  public  funds,  to 
ensure  that  they  promote  in  the  highest  degree 
the  general  welfare  of  all. 

There  have  been  many  peoples,  once  indus- 
trious and  prosperous,  who,  later,  becoming  bur- 
dened with  taxes  misspent,  or  with  tribute  car- 
ried away  by  their  conquerors,  have  sunk  into 
poverty  or  slavery.  On  the  other  hand,  some 
Utopians  and  Socialists  dream  of  a  future  state 
where  all  the  fruits  of  labor  are  to  be  taken  in 
the  first  instance  by  the  government,  and  yet 
those  same  fruits  are  to  be  so  wisely  used  on 
the  nourishment  and  uplift  of  the  people  that 
a  civilization  indescribably  perfect  will  arise. 
The  imperfections  and  weaknesses  of  .human 
nature  and  of  human  beings  seem  ever  to  stand 
in  the  way  of  any  realization  of  such  a  dream. 
Yet,  does  the  mind  reject  it  as  a  thing  not  among 
the  possibilities?    Be  that  as  it  may,  a  wise  order- 


Government  Finance 


ing  of  its  public  housekeeping  will  help  much  to 
move  a  people  over  some  part,  it  may  be  very 
small  indeed,  of  the  long,  long  road  which  leads 
from  making  bricks  without  straw  under  the 
taskmasters  of  Pharaoh  toward  "the  holy  city, 
new  Jerusalem,"  the  goal  of  the  Utopians. 

Today,  the  chief  problems  of  taxation,  or  the 
raising  of  revenues,  are  in  a  fair  way  to  be 
solved.  That  is,  it  can  be  asserted,  with  as  much 
certainty  as  is  possible  in  any  branch  of  human 
affairs,  that,  given  the  will  to  do  so,  and  the 
knowledge  of  how  to  do  so,  which,  unfortunately, 
is  not  always  present,  the  legislature  can  devise 
laws  and  the  administrative  officers  can  enforce 
them  so  as  to  bring  about  an  equitable  distribu- 
tion of  the  tax  burden.  Dififerences  of  opinion 
still  exist  as  to  the  propriety  of  using  the  power 
of  taxation  in  a  manner  to  alter  existing  condi- 
tions, as  well  as  to  the  direction  in  which  it  may 
be  desirable  to  alter  them.  But  if  the  ideal 
adopted  be  solely  raising,  in  an  equitable  manner, 
the  tax  revenues  deemed  necessary,  with  the 
least  possible  disturbance  of  the  position  of 
the  different  taxpayers  one  to  another,  the  way 
to  a  realization  of  such  an  ideal  is  known.  This 
is  so,  partly,  because  scientific  study  has  been 
longer  directed  to  questions  of  taxation  than  to 
those  of  public  expenditure;  and,  also,  because 
the  aims  and  principles  involved  are  necessarily 
more  definite  and  final. 

Governments,  like  individuals,  must  first  pro- 
vide out  of  their  incomes  for  certain  necessities, 


The  Problem 


and  if  there  be  money  over,  they  may  spend  it 
for  comforts  and  even  for  luxuries.  Like  indi- 
viduals, governments  have  different  ideas  as  to 
what  comforts  and  luxuries  it  is  desirable  to  pro- 
vide, and  like  individuals,  also,  they  are  not  even 
at  one  as  to  what  are  the  necessities. 

Again,  conditions  change  from  age  to  age,  so 
that  like  expenditures  may  not  have  like  import- 
ance or  like  effects.  Viewed  superficially  there 
is  a  possible  resemblance  between  the  free  dis- 
tribution of  corn  in  ancient  Rome  and  old  age 
pensions  in  modern  England.  But  who  would 
be  so  bold  as  to  assert  that  popular  education  and 
a  wise  administration  of  the  modern  "  donations  " 
may  not  avert  from  England,  in  this  case,  the 
evils  which  panis  circusque  created  in  Rome, 
and  which  are  supposed  to  have  contributed 
so  largely  to  the  weakening  and  downfall  of  the 
Roman  people?  The  virility,  energy,  and  pros- 
perity of  a  people  are  dependent  upon  the  entire 
complex  of  its  public  and  private  activities,  not 
upon  any  one,  and  the  private  life  and  character 
of  the  people  may  determine  directly  the  success 
or  failure  of  the  best  meant  public  enterprises. 

Economists  from  Adam  Smith  to  those  of  to- 
day have  ever  been  alive  to  the  fact  that  the 
problems  of  "consumption,"  that  is,  those  relat- 
ing to  the  effect  of  the  uses  to  which  the  fruits 
of  labor  are  put,  are  quite  as  important  as  those 
relating  to  the  production  of  wealth  and  its  "  dis- 
tribution "  or  division  among  its  users.  Although 
we  have  here  and  there  a  few  statistical  studies, 


Govcrmuent  Finance 


a  few  brilliant  essays,  many  bright  epigrams,  and, 
outside  of  these,  a  considerable  body  of  homely 
popular  proverbs,  we  may  search  in  vain  for  any- 
thing like  a  "  theory  "  or  any  "  principles  "  of  con- 
sumption or  of  the  use  of  wealth.  Not  only  does 
the  extreme  complexity  and  variety  of  the  prob- 
lems—  in  that  they  differ  not  merely  from  one 
community  to  another,  but  almost  for  every 
family  —  appall  the  investigator,  but  their  ex- 
treme mutability  drives  him  to  despair.  If  he 
should  solve  the  problem  as  to  how  much  better, 
or  worse,  men  became  when  kerosene  lamps  took 
the  place  of  candles,  he  has  to  do  it  all  over  again 
when  the  electric  globes  take  the  place  of  lamps, 
and  so  on  to  the  end. 

Another  phase  of  our  problem,  or,  perhaps, 
only  another  way  of  looking  at  it,  is  given  fre- 
quent expression.  When  we  "  reform,"  improve, 
or  partly  perfect  our  tax  system  it  often  comes 
about  that  more  money  can  be  raised  with  less 
sacrifice,  or  less  sense  of  sacrifice,  on  the  part  of 
the  taxpayers.  Legislators  are  prone  to  seize 
upon  this  new  money  and  spend  it  for  new  pub- 
lic activities  or  enterprises,  some  wise,  others 
wasteful.  The  taxpayer,  who,  when  consenting 
to  the  tax  reform,  had  expected  that  if  the  "tax 
dodgers  "  were  made  to  pay,  his  own  taxes  would 
be  reduced  is  thus  disappointed.  He  pays  as 
much  as,  or  more  than,  he  did  before  and  he 
observes  that  the  total  spent  is  far  greater. 
"  What  was  the  use  of  tax  reform,"  he  asks, 
"  if  there  is  no  guarantee  of  tax  reduction,  no 


The  Problem 


protection  against  increased  taxes?"  He  then 
demands  a  "tax-limit"  law. 

This  is,  of  course,  raising  a  false  issue.  The 
question  is  not,  "  How  much  money  is  spent  ? " 
but,  "  Is  it  wisely  spent  ? "  A  community  may 
well  "afford"  to  pay  heavy  taxes  for  good 
schools,  and  ill  "  afford "  to  pay  low  taxes  and 
go  without  schools.  But  at  the  same  time  a  tax- 
limit  law  has  great  merits,  for  it  imposes  the 
necessity  for  a  more  careful  scrutiny  of  each 
proposed  expenditure,  and  its  justification.  A 
government  running  on  a  deficit  is  more  econom- 
ical and  efficient,  as  a  rule,  than  one  which  is 
striving  to  spend  an  unnecessary  surplus.  Too 
much  income  may  be  as  bad  for  a  government  as 
too  much  pocket  money  for  a  rich  man's  son. 

The  problems  of  government  expenditures  are 
a  part  of  the  general  problems  of  consumption. 
Although  in  themselves  simpler  than  the  prob- 
lems of  private  consumption,  because  public 
activities  are  relatively  fewer  and  because  they 
are  formulated  after  discussion  and  by  definite 
consent,  yet  they  present  many  of  the  same  diffi- 
culties. It  is  on  this  account  that  no  complete 
theory  of  government  expenditures  can  be  pre- 
sented in  the  following  pages.  For  the  further 
reason  that  the  space  has  been  restricted  by  the 
editor,  the  discussion  will  be  confined  to  a  study 
of  existing  expenditures  in  the  United  States, 
federal,  state,  and  municipal,  and  even  within  that 
field  mainly  to  practical  questions  now  pending 
and  for  which  some  solution  is  sought. 


CHAPTER  II 

IN  GENERAL  ON  THE  ECONOMICS  OF  GOVERNMENT 
OR   THE  EVOLUTION   OF  PUBLIC  BUSINESS 

'T'HERE  is  a  popular  saying  which  associates 
taxes  and  death  as  two  unavoidable  evils 
which  afflict  humanity.  If  there  be  not  a  brighter 
side  to  taxes  than  this  association  of  ideas  sug- 
gests, this  book  will  be  dismal  indeed. 

If,  however,  human  life  is  interesting  as  a 
study,  then  taxes,  and  the  uses  to  which  the  pro- 
ceeds are  put,  which  touch  so  many,  many  sides 
of  human  life,  must  have  an  interest  too.  From 
birth  to  death  we  live  and  have  our  being  in 
closest  contact  with  taxes,  or  with  the  result  of 
taxation.  The  roof  which  shelters  us,  the  land 
beneath  us,  our  clothing,  food,  and  drink  are 
taxed.  With  the  proceeds  of  taxation,  govern- 
ment assures  us  protection  for  life,  and  oppor- 
tunity for  liberty  and  for  the  pursuit  of  happi- 
ness ;  it  educates  us,  disciplines  us,  and  molds  us 
in  very  many  ways. 

There  are  a  few  human  beings  in  the  world 
today  who  pay  no  taxes.  But  these  are  the 
lowest  savages  who  have  no  organized  com- 
munity life,  who  are  without  true  nationality  and 
without  government,  and  who,  for  the  most  part, 
live  under  conditions  of  dire  poverty  and  misery. 
The  moment  these  savages  unite  their  efforts  or 


Economics  of  Government 


their  means  for  a  common  end,  be  it  for  war  or 
for  the  maintenance  of  a  tribal  religion,  or  what- 
ever else  may  appeal  to  their  primitive  instincts 
as  a  desirable  common  end,  that  moment  they 
begin  to  pay  taxes ;  not  necessarily  in  money,  but 
more  often,  at  first,  in  services,  labor,  and  fight- 
ing, in  weapons,  or  in  religious  "  ofiferings." 

The  people  of  highest  civilization  are  all  pay- 
ing heavy  taxes.  While  it  cannot,  of  course,  be 
said  that  heavy  taxation  causes  a  high  civiliza- 
tion, nor,  conversely,  that  a  high  civilization 
causes,  necessarily,  heavy  taxation,  yet  the  two 
always  go  hand  in  hand.  The  reason  for  this  is 
that  experience  has  shown  that  very  many  of 
the  highest  advantages  of  civilized  life  are  best 
won  by  common  efifort  through  government.  In 
so  far  then  as  taxes  are  used  to  promote  the 
highest  ends  of  the  race,  they  are  to  be  regarded 
as  blessings  rather  than  evils. 

There  are  obviously  many  good  things  which 
men  can  obtain  and  enjoy  solely  by  organized 
efifort,  continued  through  long  periods  of  time. 
Such  organized  efifort  takes  two  forms  —  that  of 
public  enterprise  and  that  of  private  enterprise. 
The  former  is  conducted  through  political  or- 
ganization, or  government,  the  latter  through  vol- 
untary private  associations. 

There  are  some  good  things  obtainable  by  or- 
ganized efifort  which  the  experience  of  ages 
shows  us  can  be  had  properly  only  by  political 
organization,  that  is,  through  government.  These 
ultimately   require   taxes.     Thus,   no   organized 


8  Government  Finance 

government  can  be  built  up  by  private  enterprise 
only.  Without  political  organization  there  would 
be  no  one  to  decide  what  are  to  be  the  laws,  and 
no  one  to  see  that  the  laws  are  carried  out.  There 
would,  also,  be  no  satisfactory  means  of  protect- 
ing national  existence,  no  assurance  of  Having 
together  in  peace  and  happiness,  of  keeping  evil 
doers  from  destroying  life  and  property,  or  of 
adjudicating  disputes,  so  that  they  may  not  lead 
to  §trife.  These  things  are  so  clearly  and  uni- 
versally political,  that  whenever  any  of  them  are 
done  by  private  enterprise  the  case  is  regarded 
as  purely  an  exception  to  the  proper  and  estab- 
lished order.  Thus,  when,  during  the  Revolu- 
tionary War,  the  United  States  was  too  poor  to 
build  an  adequate  navy,  we  entrusted  the  work 
of  chastising  our  enemies  on  the  seas  to  pri- 
vateersmen  who  went  into  the  enterprise  for  the 
booty  they  might  win.  But  we  did  so  with  deep- 
est misgivings  and  sorrow,  recognizing  that  this 
was  a  surrender  of  government  power. 

Taxes  for  patriotic  purposes  cannot  be  classed 
as  evils;  they  support  what  is  most  precious  to 
us.  Those  peoples  who  have  been  unable  to  pro- 
tect their  national  life,  and  have  fallen  into  the 
power  of  other  peoples,  however  comfortable,  in 
some  cases,  their  subsequent  lives  may  have 
proved,  have  suflfered  deeply  from  the  disgrace. 

Disaster,  also,  always  overtakes  those  nations 
which  do  not  maintain  order  within  their  coun- 
try's boundaries. 

There  are  other  good  things  which  govern- 


Economics  of  Government 


ment  does,  and  which  we  generally  agree  should 
be  done  by  government,  which  are  not  quite  so 
essentially  public  or  political  in  character.  They 
might  be  done  by  private  enterprise  and  have 
been  so  in  many  cases.  But  they  are  made  public 
enterprises  because  we  desire  to  promote  through 
them  some  ends  which  we  regard  as  high  and 
vital  and  which  private  enterprise  is  not  likely  to 
protect.  A  conspicuous  example  of  these  is 
afforded  by  the  public  schools.  There  are  ex- 
cellent private  schools  and  it  is  conceivable  that 
all  instruction  might  be  left  to  private  initiative, 
but  so  long  as  we  hold,  as  President  Eliot  ex- 
presses it,  that  "we  must  all  press  on  together 
toward  our  national  goal"  —  an  enlightened  and 
intelligent  democracy  —  we  must  also  hold  that 
compulsory  education  in  public  schools  at  com- 
mon cost  is  a  proper  activity  of  government,  and 
we  must  levy  taxes  for  that  purpose. 

As  governments  improve,  and  demonstrate 
their  ability  to  do  things  well,  we  come  to  en- 
trust more  and  more  things  to  them.  Thus,  the 
field  of  private  enterprise  is  gradually  curtailed 
and  that  of  public  enterprise  is  gradually  ex- 
tended. The  list  of  such  things  now  done  by 
government  is  so  extended  that  to  enumerate 
them  all  would  be  tedious.  As  examples,  there 
may  be  cited  in  addition  to  schools  :  ( i )  roads, 
canals,  public  charities,  hospitals,  museums,  art 
galleries;  (2)  the  postal  service,  lighting,  public 
parks,  water  works,  and  recently  street  car  serv- 
ice, and  the  provision  and  operation  of  electric 


lo  Government  Finance 

plants.  Government,  also,  regulates  more  and 
more  all  private  life  and  business. 

Not  to  be  confused,  however,  with  the  second 
group  above,  that  is,  the  public  utilities,  are 
manufactures  and  the  like  conducted  by  gov- 
ernments without  the  recognition  of  an  essential 
public  purpose.  Yet  some  ideal  of  public  ad- 
vantage seems  to  creep  into  every  such  activity. 
Thus,  the  manufacture  by  government  for  profit 
of  Dresden  china,  of  Sevres  ware,  or  of  Gobelin 
tapestry  is  defended  as  also  upholding  sound 
ideals  of  art. 

Whenever  a  new  enterprise  is  taken  over  into 
this  field,  it  is  interesting  to  note  that  at  first  it  is 
regarded  as  though  it  were  still  quasi-private, 
and  it  is  conducted  along  lines  very  similar  to 
those  along  which  it  was  conducted  before,  when 
it  was  a  purely  private  enterprise.  But  grad- 
ually the  public  purpose,  which  must  have  been 
there,  if  the  taking  over  were  justifiable  at  all, 
comes  to  be  more  and  more  emphasized,  and  ulti- 
mately becomes  the  paramount  purpose. 

Although  governments  rarely  surrender  any 
activities,  yet  the  converse  of  the  above  principle 
is  also  true ;  that  is,  that  whenever  a  public  pur- 
pose which  once  existed  disappears,  the  public 
enterprise  from  which  it  has  disappeared  drops 
back  into  the  realm  of  private  enterprise,  and  is 
left  to  be  cared  for  by  private  action. 

Religion  was  one  of  the  very  earliest  of  public 
activities.  Yet  today  "the  established  church" 
is  a  disappearing  public  activity.     In  our  own 


Economics  of  Government  ii 

country,  never  having  been  able  to  agree  upon 
any  one  among  the  warring  religious  denomina- 
tions, we  do  not  feel  that  the  support  of  religion 
is  a  truly  public  function.  Yet  it  would  not  be 
very  difficult  to  frame  a  strong  argument  that  it 
is  so.  This  is  partly  recognized  when  churches 
are  exempted  from  taxation. 

What  then  is  the  difference  between  a  public 
enterprise  and  a  private  enterprise?  This  ques- 
tion is  most  important,  for  it  lies  at  the  threshold 
of  government  finance.  The  answer  may  be 
illustrated  by  a  review  of  the  arguments  in 
a  famous  controversy  over  an  activity  which  is 
still  in  the  debatable  territory  between  public  and 
private.  Years  ago  when  railroads  were  first  be- 
ing introduced,  debate  waxed  hot  in  France,  Ger- 
many, Austria,  and  Italy,  and,  to  a  lesser  extent, 
in  other  countries,  as  to  who  should  build,  own, 
and  operate  the  new  means  of  transportation. 
Those  who  urged  that  the  government  should 
own  and  operate  railroads  claimed  that  they 
were  "  by  nature "  public  enterprises,  while  the 
other  side  insisted  with  equal  vigor  that  they 
were  "  by  nature "  private  enterprises.  This 
point  certainly  should  have  been  conclusive,  if 
there  had  been  any  means  of  ascertaining  which 
they  were  "  by  nature." 

The  one  side  saw  in  railroads  primarily  their 
utility  in  time  of  war,  their  power  to  divert  trade 
and  thus  to  build  up  or  pull  down  cities  and  to 
alter  the  ways  and  means  of  living  for  people  in 
many  communities,  and  felt  that  they  involved 


12  Government  Finance 

far  reaching  other  possibilities  and  powers  of 
national  extent  and  of  political  import.  This  side 
also  feared  that  in  private  hands  railroads  would 
be  a  means  of  exploiting  the  public,  or  that  they 
might  fail  to  give  a  service  that  would  provide  for 
the  well-rounded  development  of  all  parts  of  the 
country  and  of  all  classes. 

The  other  side  saw  in  railroads  primarily  the 
opportunities  for  the  investment  of  private  funds. 
They  emphasized  the  necessity  for  that  energy 
and  push  which  individuals  give  under  stimulus 
of  anticipated  profit.  But  more  than  that,  they 
feared  that  the  weakness  of  public  administra- 
tion with  its  lack  of  energy  and  all  its  "  red 
tape "  would  render  the  railroads  failures  and 
make  it  difficult  to  secure  capital.  They  feared 
that  locating  railroads  where  "public  policy  dic- 
tated"—  even  if  not  corruptly  determined  — 
might  result  in  neglecting  service  where  it  was 
most  needed,  as  demonstrated  or  measured  by 
the  fact  that  it  would  be  most  profitable. 

The  existence  today  of  successful  railroads 
under  both  systems  does  not  aid  us  to  settle  the 
controversy.  But  it  does  show  that  they  are  not 
"  by  nature  "  either  private  or  public.  That  there 
are,  however,  public  interests  of  a  paramount 
character  involved  is  demonstrated  by  the  fact 
that  even  where  the  private  railroads  have  been 
most  successful,  government  "  regulation "  has 
been  found  necessary. 

In  the  light  of  what  has  gone  before,  it  appears 
that  a  public  enterprise  is  made  so  by  the  fact 


Economics  of  Government  13 

that  the  government  or  the  people  regard  the 
common  ends  which  may  be  promoted  by  it  as  of 
paramount  importance,  and  fear  that  if  the  en- 
terprise were  in  private  hands  those  common 
ends  would  not  be  as  fully  conserved  as  they 
should  be.  It  helps  to  clearness  of  thought  if  we 
recognize  two  groups  of  public  activities.  These 
two  classes,  to  be  sure,  blend  imperceptibly  into 
one  another  at  their  margins,  there  being  many 
activities  in  a  neutral  territory  between  them, 
but  at  the  extremes  they  are  perfectly  distin- 
guishable. The  first  consists  of  old  established 
governmental  activities  which  are  universally  re- 
garded as  absolutely  essential  to  the  existence  of 
government,  or  which  form  its  means  of  ex- 
pressing itself.  The  second  consists  of  these 
which  have  been  at  times,  and  can,  conceivably, 
still  be  conducted  as  private  activities,  but  which, 
because  of  the  recognition  of  a  paramount  pub- 
lic purpose,  have  been  taken  over  by  government. 
Some  one  may  object  that  a  definition  of  a 
"  public  "  enterprise,  which  merely  says  it  is  one 
which  is  so  regarded,  is  not  very  useful.  He 
may  demand  a  definition  which  will  enable  him 
to  recognize  a  public  enterprise  without  having 
to  look  into  the  statute  books  to  see  how  it  is 
regarded.  Such  a  demand  can  not  be  met.  The 
fact  is  that  the  only  test  of  what  is  a  public  en- 
terprise is  the  crystallization  of  public  opinion  as 
expressed  in  the  law.  And  public  opinion,  al- 
though guided  by  the  ideas  above  illustrated,  is 
sometimes  very  fickle  in  this  field. 


14  Government  Finance 

The  difference  between  a  public  and  a  private 
enterprise  is  not  slight  merely  because  it  orig- 
inates in  regard  or  opinion.  The  treatment  of 
each  is  entirely  different,  the  point  of  view  from 
which  it  is  regarded,  and,  above  all,  the  aims  are 
different.  The  aim  of  private  enterprise  is  pri- 
vate profit.  Even  when  the  promoters  and  man- 
agers of  a  private  enterprise,  as  not  infrequently 
happens,  take  a  broad  view  of  their  duty  to 
others,  profit  as  an  aim  can  never  be  entirely  lost 
sight  of.  If  it  is,  the  enterprise  dies.  The  only 
notable  exception,  which  may  or  may  not  be  con- 
sidered as  "  proving  the  rule,"  is  afforded  by  the 
churches.  The  aim  of  a  public  enterprise  is  not 
profit,  but  public  service.  The  books  of  a  pri- 
vate enterprise  are  kept  in  such  a  manner  as  to 
show  the  "  investment,"  and  the  current  products 
or  earnings  from  which,  after  deducting  costs, 
the  profits  are  derived.  Thus  a  private  school, 
properly  run,  keeps  books  which  show  the  cost 
or  value  of  the  plant  in  lands  and  buildings  and 
in  equipment,  and  it  charges  as  costs  not  merely 
the  salaries  of  teachers  and  other  employees,  but 
interest  on  the  investment.  It  measures  success 
in  terms  of  the  difference  between  the  tuition 
fees  received  and  all  these  costs.  No  matter  how 
much  pride  the  management  may  have  in  the 
high  quality  of  the  education  offered,  the  funda- 
mental reason  for  maintaining  and  improving  the 
quality  of  instruction  is  the  desire  to  draw  more 
pupils  and  to  make  more  money. 

Contrast  with  this  the  running  of  the  public 


Economics  of  Government  15 

schools.  Once  the  bonds,  if  there  were  any, 
which  were  issued  to  raise  money  for  buildings, 
have  been  paid,  it  no  longer  serves  any  practical 
purpose,  generally  recognized,  to  keep  an  ac- 
count of  the  investment.  Hence  there  is  usually 
no  account  called  the  capital  account,  and 
although  modern  accountants  set  up  such  ac- 
counts for  governments  they  have  only  a  hypo- 
thetical meaning.  But  far  more  important  is  the 
fact  that  the  main  purpose  of  the  public  cost  ac- 
count is  not  to  enable  the  school  board,  or  the 
public,  to  measure  the  profit,  but  to  enable  them 
to  find  out  how  much  they  must  raise.  This  is 
commonly  expressed  as  fixing  the  income  by  the 
expenditures,  a  procedure  which  cannot  very 
well  be  followed  by  a  private  enterprise.  Suc- 
cess is  measured  not  in  terms  of  dollars  and 
cents  of  profit,  but  in  accomplishment,  in  serv- 
ices, in  the  character  and  efficiency  of  the  pupils, 
and  mostly  in  things  which  can  never  be  meas- 
ured in  money  at  all.  In  illustration  of  this  we 
may  cite  a  statement  of  the  measure  of  success 
or  failure  of  public  schools  from  ex-President 
Eliot  of  Harvard,  who  in  his  little  book  entitled 
More  Money  for  Public  Schools,  supports  the 
demand  set  forth  in  his  title  as  follows : 

"  My  first  argument  in  support  of  this  proposi- 
tion is  that,  as  a  nation  and,  on  the  whole,  in 
spite  of  many  successes,  we  have  met  with  many 
failures  of  various  sorts  in  our  eflforts  to  edu- 
cate the  whole  people,  and  still  see  before  us 
many  unsurmounted  difficulties.     It  is  indisput- 


1 6  Government  Finance 

able  that  we  have  experienced  a  profound  dis- 
appointment in  the  results  thus  far  obtained  from 
a  widely  diffused  popular  education.  It  was  a 
stupendous  undertaking  at  the  start,  and  the  diffi- 
culties have  increased  with  every  generation. 
Our  forefathers  expected  miracles  of  prompt  en- 
lightenment ;  and  we  are  seriously  disappointed 
that  popular  education  has  not  defended  us 
against  barbarian  vices  like  drunkenness  and 
gambling,  against  increase  of  crime  and  insanity, 
and  against  innumerable  delusions,  impostures, 
and  follies.  We  ought  to  spend  more  public 
money  on  schools,  because  the  present  expend- 
itures do  not  produce  all  the  good  results  which 
were  expected  and  may  reasonably  be  aimed  at. 
"  Lastly,  the  final  test  of  the  value  of  the  edu- 
cation given  to  an  individual  or  to  a  nation  is 
continuous  mental  growth.  The  human  body  has 
a  continuous  development  up  to  the  age  of  twen- 
ty-five or  thereabouts,  should  then  have  a  long 
period  of  level  health  and  strength,  and  after 
sixty  may  be  expected  to  decline.  There  should 
be  no  corresponding  stages  in  mental  develop- 
ment. The  growth  of  a  man's  mental  and  spirit- 
ual powers  should  be  continuous  through  life, 
and  his  last  years  should  be  his  best.  It  is  this 
continuous  mental  development  which  proves  bet- 
ter than  anything  else  that  the  education  received 
in  youth  was  effective,  and  that  the  subsequent 
mode  of  life  has  been  all  along  wholesome  and 
improving.  If  we  include  in  this  growth  the  de- 
velopment of  what  is  called  character,  this  con- 


Economics  of  Government  17 

tinuous    enlargement    and    improvement    is    the 
supreme  human  feHcity." 

There  is  nothing  in  this  that  refers  to  profits 
which  are  measurable  in  money. 

The  private  school  collects  its  revenues  from 
the  parents  of  the  children  educated.  But  the 
public  school  educates  many  a  child  whose  par- 
ents contribute  little  or  nothing  in  taxes,  and 
often  collects  from  the  childless  rich  man  enough 
to  educate  a  dozen  or  more  children.  It  is  enough 
to  say  to  such  a  rich  man,  "  You  must  pay  be- 
cause we  have  decided  that  education  is  a  com- 
mon end.  You  shall  pay  as  you  are  able  and  not 
on  the  basis  of  any  benefit  directly  traceable  to 
you." 

A  rich  man  may  protect  his  own  property  from 
thieves  and  from  fire  by  guards,  watchmen,  and 
fire  extinguishing  apparatus,  or  insurance,  and  a 
poor  man  may  have  little  or  no  property  to  enjoy 
the  protection  afforded  by  the  police  and  the  fire 
department,  but  neither  fact  is  held  to  excuse 
either  of  them  from  a  tax  for  the  maintenance  of 
a  general  police  force  or  a  fire  service. 

If,  in  the  foregoing  illustrations,  the  difference 
between  a  private  enterprise  and  a  public  one  is 
possibly  obscured  by  the  fact  that  the  activities 
considered  have  been  public  for  so  long  a  time 
that  we  are  no  longer  capable  of  imagining  them 
as  private  enterprises,  then  an  illustration  chosen 
from  a  field  where  the  two  kinds  of  enterprises 
can  still  be  seen  side  by  side  may  be  useful. 
When  a  private  company  supplies  a  city  with 


1 8  Government  Finance 

water,  its  officers  keep  strict  account  of  every 
cent  expended  in  the  plant,  and  vigorously  de- 
mand that  the  "  rates  "  allowed  shall  give  them  a 
fair  return  upon  that  "  investment."  They  can 
collect  "  rates "  only  from  water  users ;  no  one 
else  would  dream  of  paying.  The  city  takes  over 
the  plant  and  operates  it.  At  first  the  city  fol- 
lows, with  rare  exceptions,  the  same  old  plan  of 
operation  as  the  private  company.  As  long  as 
there  are  bonds  outstanding  which  were  issued  in 
payment  for  the  plant,  some  account  is  kept  of 
the  capital  investment.  Costs  are  all  carefully 
kept  track  of  and  the  management  endeavors  to 
show  a  profit.  Rates  are  collected  only  from 
water  users.  But  unlike  the  private  company, 
the  profits  are  not  the  main  consideration.  Street 
sprinkling,  the  flushing  of  sewers,  public  health, 
and  other  purposes  gradually  assume  a  greater 
importance.  As  time  goes  on,  the  bonds  with 
the  proceeds  of  which  the  plant  was  purchased 
are  paid  off,  and  with  the  disappearance  of  the 
interest  charge,  the  "capital"  or  "investment" 
account  becomes  a  formal  matter  of  bookkeeping 
of  little  more  than  historical  or  statistical  interest. 
Improvements  are  made  out  of  the  earnings,  or 
the  service  is  improved  for  the  same  rates,  or 
the  rates  to  users  are  reduced.  In  any  event,  the 
time  comes  when  the  public  water  works  are 
doing  their  work  at  rates  to  the  users  which  no 
private  enterprise  could  possibly  live  on.  The 
difference  in  rates,  however,  is  not  evidence  of  a 
difference  in  cost.     In  fact,  generally  speaking, 


Economics  of  Government  19 

public  management  is  really  more  costly.  The 
difference  between  the  rates  and  the  true  cost  is 
money  which  is  either  the  proper  earnings  of  the 
investment  in  the  plant,  or  money  which  comes 
out  of  the  general  taxes.  In  the  first  case,  it  is 
analogous  to  interest  on  money  invested  by  the 
citizens,  paid  to  the  rate  payers  in  the  form  of  a 
remission  in  rates.  In  the  second  case,  it  is  the 
payment  of  salaries  to  the  administrative  officers 
out  of  general  funds  not  charged  up  to  or  col- 
lected from  the  water-rate  payers. 

Such  an  enterprise  is  thus  on  its  way  to  be- 
come a  purely  government  function.  While  no 
city  water  works  of  any  importance  have  so  far 
gone  through  the  whole  evolution,  and  are  main- 
tained entirely  by  taxes,  yet  by  the  analogy  of 
other  public  enterprises  they  will  do  so.  The 
most  recent  illustration,  perhaps,  of  this  tendency 
is  free  textbooks  in  public  schools  which  takes 
the  last  remnant  of  the  cost  of  education  from 
the  parents. 


CHAPTER  III 

THE     DIFFICULTIES     OF     STATING     THE     COST     OF 
GOVERNMENT 

A  NY  figures,  whether  of  aggregates,  ratios,  or 
averages,  intended  to  express  the  cost  of 
government  must  be  used  with  extreme  care. 
Their  interpretation  is  in  no  case  easy  and  they 
can  be  true  as  applying  only  to  the  limited  and 
restricted  purpose  for  which  they  have  been 
compiled. 

In  the  first  place,  up-to-date  statistical  data 
for  a  complete  total  of  all  governmental  expend- 
itures in  the  United  States  are  not  available. 
The  Census  reports  on  wealth,  debt,  and  taxation, 
while  excellent,  are  not  complete.  They  appear 
only  once  in  ten  years  and  even  then  refer  to 
two  or  three  years  previous  to  publication.  Hence, 
some  estimates  must  be  used.  Very  complete  data 
for  cities  of  over  thirty  thousand  inhabitants  are 
frequently  published  by  the  Census  Bureau.  The 
gap  in  the  available  data  is  mainly  as  to  the  ex- 
penditures by  small  local  communities.  Few 
states  undertake  to  compile  these  expenditures, 
and  when  they  do  the  results  are  often  very 
imperfect. 

A  fertile  source  of  errors,  which  it  is  hard  to 
eliminate,  is  the  transfer  of  funds  from  one  divi- 

20 


Cost  of  Government  21 

sion  of  government  to  another.  The  state  often 
collects  school  moneys,  transfers  them  to  the 
counties,  which  in  turn  transfer  them  to  the 
school  districts.  If  care  be  not  taken  they  may 
be  counted  three  times. 

In  the  second  place,  the  word  "cost"  may  be 
variously  interpreted.  Thus  we  may  mean  by  the 
term  "  annual  cost,"  the  total  of  all  expenditures, 
whether  for  running  expenses,  new  property, 
such  as  buildings,  parks,  public  utilities  and  the 
like,  interest  on  debt,  payments  on  the  principal 
of  debt,  and,  perhaps,  other  things.  Or,  again, 
we  may  restrict  it  to  the  "  cost  to  the  taxpayers," 
excluding  all  expenditures  made  out  of  earnings 
from  industries  like  the  post-office,  or  the  sale  of 
public  lands,  or  from  investments  and  the  like. 
Other  limitations  which  might  be  necessary  will 
readily  occur  to  the  reader. 

My  own  estimate  of  the  average  annual  per 
capita  expenditures  of  all  branches  of  govern- 
ment in  the  United  States,  exclusive  of  our  in- 
sular possessions,  is,  for  years  like  191 1  or  1912, 
not  less  than  forty  dollars  and  not  more  than 
forty-five  dollars.  But  I  cannot  claim  for  this 
that  it  is  more  than  an  intelligent  guess  based 
on  long  familiarity  with  the  published  reports  and 
guided  by  many  years  of  experience  and  study. 
There  being  at  present  no  available  means  of 
making  an  accurate  estimate,  this  is  the  best  that 
we  can  do. 

Of  course  this  forty  or  forty-five  dollars  does 
not  mean  the  amount  that  you  pay,  nor  that  I 


22  Government  Finance 

pay,  nor  even  what  is  spent  through  government 
agencies  upon  you  or  me.  Some  men  pay  much 
more  and  a  multitude  much  less.  Some  men  are 
directly  benefited  by  an  expenditure  of  much 
more  than  forty  or  forty-five  dollars  apiece  per 
annum ;  and  others,  most  of  us,  by  much  less 
spent  upon  us  directly.  Indirectly,  of  course,  as 
the  protection  of  government  is  indispensible, 
and  as  we  could  not  provide  it  for  ourselves,  un- 
aided, we  all  benefit  far  beyond  this  moderate 
amount. 

While  in  a  vague  general  way  it  is  the  aim  and 
theory  of  government  to  make  us  pay  as  we  are 
able,  and  to  spend  upon  us  in  accord  with  our 
needs,  even  that  aim  is  never  wholly  realized. 

To  emphasize  again  the  danger  of  using  such 
figures  without  careful  regard  to  what  they  are 
intended  to  cover,  we  may  examine  the  data  pre- 
pared by  Professor  E.  V.  Robinson  for  the  Min- 
nesota Tax  Commission,  and  bearing  on  the 
"  cost  of  government  in  Minnesota."  So  far,  no 
more  careful  study  of  such  data  has  ever  been 
made,  and  the  following  remarks  are  not  in  crit- 
icism, but  are  intended  merely  to  illustrate  the 
difficulties  of  interpretation : 

Professor  Robinson  finds,  for  example,  that 
the  Federal  Government  collected  on  the  average 
some  seven  dollars  per  capita  in  various  taxes  in 
191 1,  and  somewhat  less  than  four  dollars  per 
capita  more  from  other  sources,  the  total  being 
ten  dollars  and  eighty-five  cents.  But  the  Pro- 
fessor, being  interested  to  know  what  it  cost  the 


Cost  of  Government  23 

people  of  Minnesota  to  support  the  Federal  Gov- 
ernment, suggests  that  as  Minnesota  people  are 
found  to  be  something  over  fifty  per  cent  weal- 
thier than  the  average  for  the  United  States,  they 
probably  paid  fifty  per  cent  more  per  capita  of 
the  federal  taxes,  or  say  ten  dollars  and  seventy 
cents  apiece,  in  taxes  instead  of  seven  dollars  — 
to  use  his  figures.  It  is,  of  course,  perfectly  clear 
that  there  may  be  a  difference  between  states  as 
to  their  per  capita  share  of  the  federal  taxes. 
But  does  it  necessarily  follow  that  the  rich  Min- 
nesotans,  just  because  they  are  rich,  smoke  more 
tobacco,  drink  more  beer  and  spirits,  and  buy 
more  imported  goods  subject  to  tariff,  on  the 
average,  than  do  their  poorer  fellow  citizens  of 
other  states?  The  mere  possibility  of  questioning 
this,  shows  the  difficulty  of  interpretation. 

All  along  through  the  text  these  difficulties 
have  beset  us.  We  have  tried  to  guard  against 
misinterpretation  by  various  devises  or  phrases 
to  show  the  limits  of  our  data.  "  Gross  expend- 
itures," or  "  payments,"  is  a  phrase  used  to  cover 
everything  passing  out  of  a  given  treasury,  in- 
cluding transfers  to  other  branches  of  govern- 
ment, costs  for  commercial  enterprises,  interest 
on  debt,  investments,  and  repayment  of  debts, 
as  well  as  the  actual  net  cost  of  running  the  gov- 
ernment. "  Net  cost  to  tax  payers  "  is  another 
term  which  is  used  to  imply  the  expenditures 
stripped  of  investment  earnings  and  the  like. 

The  census  bureau  has  set  up  an  elaborate 
terminology  for  the  different  class  of  payments  to 


24  Government  Finance 

which  the  reader  is  referred  for  further  enlight- 
enment. We  have  not  adopted  that  terminology 
in  this  book  because  it  seems  to  use  in  a  limited 
and  restricted  way  terms  used  differently  in  com- 
mon everyday  language.  We  have  followed  the 
Census  Bureau  in  the  use  of  the  term  "  outlay," 
which  means  an  expenditure  for  acquiring  land, 
buildings,  or  anything  of  a  permanent  char- 
acter. An  "outlay"  is  in  contrast  to  "running 
expenses." 


CHAPTER  IV 


OUR  FEDERAL  FINANCES 


'  I  'HE  Federal  Government  is  spending  today  in 
round  numbers  about  a  billion  dollars  per 
annum.  A  little  over  a  hundred  years  ago,  in  the 
year  1810,  the  United  States  Government  paid 
out  in  all  $8,474,000,  or  eight-tenths  of  one  per 
cent  of  present-day  spending.  This  latter  sum 
included  $3,163,000  for  interest  on  the  public 
debt,  which  had  been  incurred  during  the  War 
of  Independence,  so  that  the  ordinary  cost  of 
government  was  then  $5,311,000.  We  have 
chosen  the  year  1810  for  comparison  with  the 
present  rather  than  one  of  the  earlier  years  of 
the  existence  of  the  Federal  Government,  because 
the  expenses  of  the  earlier  days  were  somewhat 
abnormal,  owing  to  the  readjustment  of  the  debt 
and  the  necessarily  large  expenses  involved  in 
organizing  the  new  government. 

In  the  year  191 1  the  total  payments,  exclusive 
of  book-keeping  items,  made  by  Uncle  Sam,  were 
$964,000,000.  This  $964,000,000  contained  $56,- 
500,000  of  payments  on  the  account  of  the  public 
debt,  leaving  for  all  other  purposes  the  sum  of 
$907,500,000.  In  1912  the  aggregate  was  $965,- 
000,000,  less  $51,000,000  for  debt  charges,  or 
$914,000,000  for  all  other  purposes.    The  figures 

25 


26  Government  Finance 

include  the  cost  of  the  post-ofifice  and  payments 
for  the  Panama  Canal.  Without  the  post-office 
revenues  and  such  as  are  incidental  to  public 
services,  the  Federal  Government  is  raising  by 
compulsory  taxes,  the  true  measure  of  the  bur- 
den on  the  people,  between  $650,000,000  and 
$700,000,000  annually. 

There  are,  of  course,  a  great  many  more  peo- 
ple in  the  country  now  for  whom  these  expend- 
itures are  made,  than  there  were  in  1810.  Re- 
duced to  a  per  capita  basis,  the  figures  are:  for 
1810,  $1.17,  and  for  191 1,  $10.48.  For  1914 
they  will  not  be  far  different.  This  comparison 
is  very  striking;  one  might  say  almost  startling. 
We  may  not,  however,  jump  at  once  to  the  con- 
clusion that  the  burden  of  supporting  the  Federal 
Government  is  nearly  ten  times  as  great  for  each 
man,  woman,  and  child  as  it  was  a  hundred  years 
ago.  In  the  first  place,  the  purchasing  power  of 
money  has  decreased  and  a  dollar  does  not  mean 
as  much  in  goods  or  in  wages  as  it  used  to  mean. 
In  the  second  place,  we  are  better  off  today  and 
can  afford  to  spend  more.  It  would  be  interest- 
ing, if  it  were  possible,  to  readjust  these  figures 
—  $1.17  and  $10.48  per  capita  —  so  as  to  make 
a  comparison  that  would  be  more  valid.  But  that 
cannot  be  done  at  all  accurately,  because  the 
necessary  data  for  1810  are  not  available.  It  is 
not,  however,  a  very  rash  guess  to  say  that  a 
dollar  today  will  buy  less  than  half  as  much  as  a 
dollar  would  in  1810,  so  the  increase  is  certainly 
not  more  than  five-fold,  and  may  be  much  less. 


Our  Federal  Finances  2^ 

We  know  that  in  recent  years  the  expenditures 
have  increased  faster  than  wealth,  both  in  the 
aggregate  and  per  capita.  But  again,  the  data 
available  as  to  the  amount  of  wealth  in  1810  are 
not  sufficiently  accurate  to  enable  us  to  revise  the 
figures  for  purposes  of  a  precise  comparison. 

The  fact,  however,  is  very  clear  that  federal 
expenditures  are  growing  faster  than  population, 
and  faster  than  wealth.  The  same  is  true  to  a 
far  greater  degree  of  state  and  local  expenditures 
as  we  shall  see  later.  Furthermore,  this  phe- 
nomenon of  growing  public  expense  is  not  pe- 
culiar to  our  own  country,  it  is  observed  in  all 
progressive  countries. 

Whether  this  growth  in  government  expend- 
itures is  justifiable  depends,  as  Professor  Bullock 
has  pointed  out,*  not  on  whether  we  can  afford 
the  money,  but  on  whether  it  is  well  spent.  As 
long  ago  as  1776,  the  people  of  Pennsylvania  laid 
down  in  their  constitution  the  correct  principle, 
that  "  the  purpose  for  which  any  tax  is  to  be 
raised  ought  to  appear  clearly  to  the  legislature 
to  be  of  more  service  to  the  community  than  the 
money  would  be,  if  not  collected."  President 
Garfield  stated  another  correct  theory  when  he 
held  that  "  while  the  total  sum  of  money  ex- 
pended from  year  to  year  must  necessarily  be 
greater,  the  amount  per  capita  ought,  in  all  well- 
regulated  governments,  in  time  of  peace,  to  grow 
gradually  less."    This  latter,  however,  is  subject 


*  Pol.  Sci.  Qiiar.  xvni,  p.  no. 


28  Government  Finance 

to  a  modification,  which  might  read  "  provided, 
the  government  has  not  extended  its  activities  in 
some  new  directions  and  extended  them  wisely." 

In  view  of  this,  we  are  interested  to  see  what 
all  the  money  is  spent  for.  For  this  purpose  we 
may  study  the  expenses  of  191 1  and  1912.  Es- 
pecially do  we  choose  191 1  because  both  the  re- 
ceipts and  expenditures  for  that  year  have  been 
subjected  to  intensive  study  by  President  Taft's 
Commission  on  Economy  and  Efficiency,  and  by 
Professor  E.  V.  Robinson  for  the  Minnesota  Tax 
Commission  (see  Report  of  1912),  and  the  ac- 
counts have  been  rearranged  in  several  different 
ways,  bringing  out  facts  not  easily  available  for 
other  years.  The  conditions  in  these  years  were, 
also,  more  normal  and  typical  than  those  since 
the  financial  depression  and  the  outbreak  of  the 
great  war. 

The  figures  presented  have  been  roughly 
rounded  out  to  the  nearest  million  or  quarter  of  a 
million,  as  being  easier  to  remember,  but  the  de- 
tails if  desired  are  available  in  the  reports  re- 
ferred to. 

A  private  business  concern  divides  its  expenses 
into  wages,  cost  of  materials,  cost  of  equipment, 
rent,  interest,  debt  payments,  and  other  such  com- 
monplace classes.  The  President's  Commission 
on  Economy  and  Efficiency  made  an  analysis  of 
the  "allotments"  for  1912  in  somewhat  the  same 
way.  From  that  we  find  that  out  of  a  total  of  $1,- 
000,000,000  and  a  little  over.  Uncle  Sam  spends 
$381,000,000  for  the  salaries  and  wages  of  his 


Our  Federal  Finances  29 

regular  officers  and  employees  —  the  reader  will 
note  that  this  is  thirty-eight  per  cent  of  the  whole, 
and  as  *^he  total  happens  to  one  thousand  million, 
all  the  following  figures  can  be  turned  into  per- 
centages by  merely  pointing  ofif  —  but  he  also 
hires  a  good  many  outside  people  and  companies 
to  work  for  him  on  contracts  or  otherwise,  fur- 
nishing services  of  many  kinds,  like  transporta- 
tion, heat,  light,  repairs,  construction,  printing, 
advertising  and  so  on,  and  this  eats  up  $141,- 
000,000.  Then  his  supplies,  equipment,  and  other 
materials  cost  him  about  $118,000,000.  Rent,  in- 
terest, and  permanent  grants,  such  as  the  $2,- 
500,000  for  agricultural  colleges,  cost  him  $35,- 
500,000.  New  land,  new  buildings,  and  other 
improvements  cost  him  $27,400,000  in  19 12,  and 
usually  cost  about  the  same  amount.  It  takes 
about  $77,000,000  to  pay  back  his  debts  as  they 
fall  due  and  to  refund  money  entrusted  to  him 
for  various  purposes.  Then  he  pays  about  $160,- 
000,000  in  j)ensions  of  all  sorts.  In  1912,  the 
Panama  Canal,  other  canals,  irrigation  works, 
and  the  like  cost  about  $57,000,000.  But  this 
item  will  change.  Then  at  the  end  of  the  list, 
he  sets  down  $5,000,000  for  losses  and  contin- 
gencies. 

For  all  this  money  what  do  the  people  get? 
First,  we  may  set  down  the  services  of  the  gov- 
ernment in  its  general  branches  —  the  legislative 
and  executive  departments.  Congress  costs 
about  $7,000,000  a  year,  just  by  itself.  If  you 
wish  to  add  to  that  the  cost  of  congressional  com- 


30  Government  Finance 

missions,  the  cost  of  public  printing,  the  con- 
gressional library,  and  some  other  like  items,  the 
total  swells  to  over  $13,500,000.  But  as  much  of 
the  printing  done  at  the  Public  Printing  Office, 
amounting  in  all  to  $5,500,000,  is  done  for  other 
officers  and  departments,  and  the  library  is  much 
used  by  others  than  congressmen,  it  is,  perhaps, 
proper  to  "  knock  off  "  about  $3,500,000,  and  say 
that  congress  costs  about  $10,000,000.  This, 
standing  alone,  looks  like  a  large  sum,  although 
it  is  only  one  per  cent  of  the  whole  cost  of  the 
government.  But  it  must  be  remembered  that  we 
follow  the  democratic  theory  of  paying  the  mem- 
bers of  Congress  and  the  Senate  for  their  serv- 
ices, and  repay  their  traveling  expenses,  and  that 
we  let  them  have  all  necessary  clerical  help.  As 
these  expenses  are  much  in  the  public  eye  and 
are  the  frequent  subject  of  debate  between  the 
majority  and  the  minority  in  Congress  itself,  we 
may,  perhaps,  assume  that  they  are  justifiable  and 
are  not  far  away  from  what  is  reasonable  for 
our  form  of  government.  It  is  less  than  $19,000 
per  member,  each  year. 

The  President  and  his  immediate  office  force 
cost  about  $200,000.  This  is  certainly  very  mod- 
est, and  compared  with  the  amounts  paid  for 
crowned  heads  by  European  countries  looks  nig- 
gardly. Great  Britain  spends  about  $3,000,000 
for  the  support  of  the  "  crown."  But  differences 
in  ideals  and  duties  vitiate  the  comparison.  The 
President  is  aided  in  his  work  by  the  Civil  Serv- 
ice Commission,  which  costs  $270,000,  and  from 


Our  Federal  Finances  31 

time  to  time  by  special  commissions.  In  191 1, 
these  cost  $250,000,  but  they  are  not  necessarily 
permanent. 

It  has  been  traditional  to  state  the  rest  of  the 
expenditures  by  departments  corresponding  to  the 
various  cabinet  officers.  But  this  does  not  lead 
to  clearness,  because  the  apportionment  of  duties 
among  the  departments  is  somewhat  haphazard 
and  arbitrary,  and  because  it  throws  together 
things  we  would  like  to  look  at  separately.  There 
are,  however,  three  executive  departments  which 
we  might  consider  separately  as  such.  The  first 
is  the  Treasury  Department,  which  for  purely 
central  and  supervisory  work  costs  about  $24,- 
000,000.  That  is,  two  and  four-tenths  per  cent  of 
all  our  expenses  are  for  collecting  taxes  and  other 
revenues,  and  taking  care  of  the  money.  About 
$15,000,000  of  this  is  for  collecting  revenues 
alone.  The  rest  goes  for  keeping  accounts,  audit 
and  control,  and  for  supervising  the  officers  in 
charge  of  the  mint,  of  all  money  issues,  of  the 
national  banks,  of  public  health,  of  life-saving, 
and  of  other  activities  given  separately  below. 

The  second  is  the  Interior  Department,  which 
stripped  of  its  special  bureaus,  whose  activities 
we  want  to  study  separately,  costs  about  $3,- 
800,000.  This  is  the  "  overhead  charge "  for 
supervising  a  multitude  of  important  activities, 
including  the  Land  Office,  Office  of  Indian  Af- 
fairs, Bureau  of  Pensions,  Patent  Office,  Bureau 
of  Education,  Geological  Survey,  Reclamation 
Service,  and  Bureau  of  Mines.    The  third  is  Pub- 


32  Government  Finance 

lie  Buildings,  technically  under  the  Treasury  De- 
partment. With  $16,250,000  worth  of  new  build- 
ings going  up,  and  with  the  supervision  of  this 
work,  together  with  the  care  of  other  buildings, 
this  office  costs  $20,800,000. 

The  total  of  all  these  overhead  expenses,  omit- 
ting $16,250,000  for  new  buildings  and  including 
Congress  and  the  executive  departments,  is 
$43,000,000. 

Leaving  now  the  old  departmental  arrange- 
ment, let  us  make  a  group  of  certain  activities 
which  we  may  call  those  relating  to  the  "  protec- 
tion of  life  and  property."  The  largest  of  these 
is  a  sub-group  relating  to  the  "  preservation  of 
peace  and  order,"  including  national  defense  and 
the  courts.  The  army  cost,  in  191 1,  about  $119,- 
000,000,  the  navy,  $117,400,000,  and  foreign  af- 
fairs, $2,400,000 ;  a  total  of  nearly  $239,000,000. 
This  is  nearly  a  quarter  of  all  our  expenses.  It 
is  a  steadily  growing  cost.  As  far  back  as  1789, 
Adam  Smith  observed  that  defense  "  grows  more 
and  more  expensive  as  society  advances  in  civili- 
zation." Statistics  of  public  expenditures  for  de- 
fense the  world  over  show  that  this  statement  is 
as  true  today  as  when  it  was  first  written. 

But  these  are  not  the  only  items  of  expense 
attributable  to  war,  i.  e.,  to  wars  past  and  to  the 
desire  to  prevent  war,  or  to  be  ready  for  wars  to 
come.  In  191 1,  and  still  today,  there  were  two 
other  items  traceable  mainly  to  the  same  general 
cause.  These  were  for  pensions  and  the  care  of 
old  soldiers,  a  total  of  $163,100,000  and  for  debt 


Our  Federal  Finances  33 

charges,  $56,500,000.  The  total  is  the  staggering 
sum  of  $459,000,000,  or  not  much  short  of  half 
of  all  federal  expenses.  Broadly  speaking,  we 
are  paying  $5.00  for  each  man,  woman  and  child, 
each  year,  for  the  cost  of  war  in  times  of  peace. 

The  History  of  the  Cost  of  War 

We  may  digress  for  a  moment  and  look  back 
over  the  history  of  the  cost  of  wars  in  this  coun- 
try. The  Revolutionary  War  left  us  with  a  debt 
of  approximately  $80,000,000,  which  was  but  a 
small  part  of  the  cost  of  that  significant  struggle. 
In  1800,  the  army  was  costing  $2,500,000  an- 
nually, the  navy  $3,500,000,  and  interest  on  the 
debt,  mainly  a  result  of  war,  $3,400,000.  This  is 
in  all  $9,400,000  for  war  out  of  a  total  of  only 
$10,800,000.  It  left  but  little  for  other  purposes, 
and  kept  the  government  poor.  Nothing  but  the 
proceeds  from  the  sale  of  public  lands,  which  be- 
gan to  come  in  soon  after  this,  saved  the  Federal 
Government. 

The  War  of  1812  occasioned  a  new  debt  of 
some  $80,000,000,  besides  leading  to  heavy  taxes. 
It  also  laid  the  foundation  of  the  soldiers'  pen- 
sion system,  which  began  in  1818.  By  1820,  out 
of  $18,300,000  expended  for  all  purposes,  $15,- 
400,000  or  $1.60  per  capita  went  for  war  charges. 
This  was  a  heavy  burden  in  that  day  and  genera- 
tion. Again,  the  Mexican  War  created  a  debt  of 
nearly  $50,000,000  with  accom])anying  other 
costs.     So  that  by   1850,  although  the  military 


34  Government  Finance 

charges  had  dropped  from  $35,800,000  in  1847, 
to  $9,600,000,  yet  the  aggregate  annual  war 
charges,  exclusive  of  the  expenses  of  looking 
after  the  Indians,  were  $19,500,000.  However, 
this  was  the  lightest  war  burden  we  have  ever 
borne,  because,  with  the  growth  of  population,  it 
was  only  eighty- four  cents  per  capita. 

It  has  been  estimated  that  the  Civil  War  cost 
the  Federal  Government  $6,190,000,000  all  told, 
exclusive  of  pensions,  since  1880.  By  1870,  the 
annual  cost  to  the  Federal  Government  alone  of 
wars  past  and  preparedness  for  war  was  no  less 
than  $233,500,000.  This  was  the  heaviest  burden 
we  have  borne,  amounting  to  $6.00  per  head.  It 
then  fell  steadily  until  the  Spanish  War,  which, 
including  the  campaign  in  China  and  the  restora- 
tion of  peace  in  the  Philippines,  raised  the  annual 
expenditures  for  the  army  and  navy  alone  from 
an  average  of  $82,000,000  per  annum  (based  on 
the  four  years  1894-97)  to  an  average  of  $210,- 
000,000  (based  on  1898-1901).  It  also  increased 
the  soldiers'  pensions  and,  although  to  a  rela- 
tively small  extent,  added  to  the  debt  charges. 
We  have  had  "  a  hard  row  to  hoe  "  in  becoming 
an  independent  and  consolidated  nation. 

Returning  from  our  digression  to  the  present- 
day  costs  of  the  Federal  Government,  our  next 
item  is  $9,500,000  for  the  Department  of  Justice 
and  the  courts.  Thus  all  together,  keeping  the 
peace  and  settling  disputes,  costs  the  Federal 
Government  about  $248,300,000  annually. 


Our  Federal  Finances  35 

We  come  now  to  three  sets  of  activities,  most 
of  which  are  either  new,  or  comparatively  recent 
expansions  of  old,  activities.  These  are  :(i)  the 
public  health,  (2)  the  provisions  for  public 
safety,  (3)  the  regulation  of  industry,  commerce, 
and  the  like.  The  first  costs  $5,600,000,  the  sec- 
ond $8,000,000,  the  third,  $4,500,000,  together, 
$18,100,000.  Under  the  first  are  looking  after 
health  and  sanitation  and  the  inspection  of  foods 
and  drugs  —  the  latter  alone  costing  over  $3,- 
700,000.  These  two  are  growing  expenditures 
and  mark  a  new  idea  as  to  government  respon- 
sibilities and  duties.  It  seems  probable  that  these 
activities  will  increase  in  importance  and  cost. 
Steamboat  inspection  and  the  light-house  and 
life-saving  provisions  in  the  second  group  are 
older  than  any  others  in  these  three  groups  and 
have  probably  reached  their  full  growth,  at  least 
in  proportion  to  population.  But  those  among  the 
third,  namely  the  Immigration  Service,  the  Bureau 
of  Labor,  the  Bureau  of  Corporations,  and  the 
Interstate  Commerce  Commission,  are  growing 
rapidly.  One  activity  only,  namely  the  supervi- 
sion of  national  banks,  here  included,  has  reached 
its  full  growth,  that  is  in  proportion  to  popula- 
tion. But  here  comes  the  Federal  Reserve  Bank 
System  with  new  costs.  Like  the  supervision  of 
health  and  foods,  these  activities  seem  very  likely 
to  expand  and  to  cost  more  each  year.  But  after 
all,  $18,000,000  for  health,  safety,  and  earnings  is 
not  large  against  $250,000,000  for  national  de- 
fense. 


36  Government  Finance 

Public  works,  including,  besides  the  "  rivers 
and  harbors"  —  that  perennial  subject  for  con- 
gressional strife,  which  cost,  in  191 1,  at  low  ebb, 
about  $8,500,000  —  irrigation  works,  inland 
canals,  and  other  items,  but  excluding  the  Pan- 
ama Canal  ($37,000,000  in  191 1),  cost  $18,- 
500,000.  Direct  aids  to  industry  through  the 
agricultural  and  fishery  services,  the  patent  of- 
fice and  the  like,  and  trade  promotion  by  the 
consular  service  and  other  agencies,  cost  $11,- 
000,000.  On  scientific  research  and  publication 
the  Federal  Government  spends  $12,250,000,  on 
education  only  $5,700,000,  on  parks  $355,000. 
Our  wards,  the  Indians,  cost  $6,500,000.  Alto- 
gether, the  activities  above  listed  cost  about  $1 16,- 
600,000,  including  the  Panama  Canal,  or  $79,- 
600,000  without  the  canal.  Less  than  eighty- 
seven  cents  per  capita  for  promoting  efficiency  is 
not  large  against  $5.00  for  war. 

We  have  included  in  our  grand  total  the  cost 
of  the  post-office,  which  runs  to  nearly  $240,- 
000,000.  There  is  a  sense  in  which  this  is  not  a 
cost  or  burden  of  the  government.  It  is  not  paid 
for  by  taxes  or  other  compulsory  revenues.  The 
users  get  a  direct  return,  worth  more  to  them  than 
the  cost,  and  the  income  approximately  equals 
the  expenses.  But  it  is  inextricably  interwoven 
with  all  government  activities,  causes  Congress 
and  the  executive  offices  work,  and  is  operated 
on  broad  lines,  looking  to  the  public  welfare  in 
general  and  not  to  money  profits ;  that  is,  it  is 
treated  as  an  essential  public  service.     On  a  par 


Our  Federal  Finances  37 

with  this  is  the  postal  savings  bank  which  so  far 
costs  but  little  —  $57,000. 

Other  public  services  of  importance  are  the 
forestry  service,  costing  $5,500,000,  the  adminis- 
tration of  the  public  lands,  $4,000,000,  the  issu- 
ance of  money,  $4,600,000. 

This  shows  $9,500,000  for  forestry  and  public 
lands,  which  is  little  enough,  but  stands  out  in 
startling  contrast  with  only  $4,500,000  for  indus- 
try, commerce,  and  labor.  We  spend  more  than 
twice  as  much  on  inanimate  nature  as  we  do  on 
live  men. 

The  territories  and  the  District  of  Columbia 
cost  $11,500,000,  about  three-fourths  of  which  is: 
offset  by  receipts  of  local  revenues.  Included  in 
the  grand  total  are  also  some  $33,000,000  of 
technical,  or  bookkeeping  expenditures,  repre- 
senting the  return  of  trust  funds  and  the  like 
which  are  also  offset  by  receipts,  not  taxes. 

Finally  comes  the  interest  on  the  public  debt, 
$21,300,000  and  debt  payment,  $35,200,000,  a 
total  of  $56,600,000. 

There  are  three  questions  as  to  federal  financial 
policy  and  tendencies  which  are  interesting.  The 
first  is  the  scope  of  federal  activities ;  the  second, 
the  efficiency  and  economy  of  service ;  the  third, 
how  the  equation  between  receipts  and  expenses 
is  attained. 

The  Scope  of  Federal  Activities 

The  Constitution  and  the  logic  of  federal  gov- 
ernment, in  general,  necessitate  that  the  exec- 


38  Government  Finance 

utive,  legislative,  and  judicial  departments  shall 
be  maintained,  and  place  all  matters  relating  to 
foreign  affairs  and  war,  except  internal  dissen- 
sions within  a  state,  in  the  hands  of  the  Federal 
Government.  For  similar  reasons,  coinage  and 
money,  the  post-office,  the  light-house  service, 
patents  and  copyrights,  the  census,  and  at  least 
the  prevention  of  interference  by  the  states  with 
the  freedom  of  interstate  commerce  are  essen- 
tially federal  functions.  As  vast  tracts  of  land 
were  donated  to  the  United  States,  the  land  office 
is  also  essential. 

Every  other  function  now  exercised  by  the 
Federal  Government  is  an  invasion  of  the  sphere 
of  action  originally  reserved  for  the  states.  This 
invasion  rests  technically  on  the  right  to  regulate 
interstate  affairs,  and  requires  in  every  case  a 
straining  of  the  meaning  of  the  Constitution. 
There  is,  however,  today,  very  little  tendency  to 
reassert  the  doctrine  of  state  rights  or  to  resent 
this  expansion  of  federal  activities.  The  sole 
question  is,  Which  can  do  these  things  best,  the 
separate  commonwealths  or  the  Federal  Govern- 
ment, or  a  combination  of  both  in  cooperation? 
The  judgment,  in  general,  is  that  the  Federal 
Government  does  them  best.  Most  of  the  states, 
especially  those  once  most  wedded  to  the  doc- 
trine of  state  rights  seem  content  to  sit  back  and 
let  the  Federal  Government  do  all  it  can  and  will. 
Some  few  of  the  most  advanced  and  best  gov- 
erned states,  not  content  with  what  the  Federal 
Government   is   doing  in  these   lines,   duplicate 


Our  Federal  Finances  39 

these  activities  or  carry  them  farther  than  the 
Federal  Government  goes.  When  this  happens, 
there  are  some  clashes  of  jurisdiction,  as  in  the 
matter  of  rate  fixing  for  railroad  fares  and 
freights,  and  some  duplication  of  expense.  More 
often  there  is  an  effort  to  divide  the  field  of 
the  work,  and  occasionally  direct  cooperation. 
Among  the  most  important  activities  thus  dupli- 
cated may  be  mentioned :  health  and  sanitation  ; 
food  and  drug  inspection ;  immigration  service ; 
labor  bureaus ;  control  of  corporations ;  com- 
merce, especially  the  railroad  commissions  ;  every 
line  of  public  work,  including  irrigation  and 
drainage,  highways,  inland  canals,  rivers  and 
harbors  ;  the  fishery  service  ;  agriculture  ;  trade 
promotion;  weights  and  measures;  reHef  of  vet- 
erans ;  and  forestry. 

A  certain  amount  of  duplication  between  the 
national  and  state  governments  is  unavoidable 
for  two  reasons.  The  first  is  the  constitutional 
inhibition,  which  prevents  the  states  from  inter- 
fering with  each  other's  affairs,  and  hence  the 
necessity  for  some  central  authority  to  care  for 
such  matters  as  overlap.  The  second  is  the  prac- 
tical one  of  funds.  As  the  benefits  are  often 
local,  the  Federal  Government  does  not  seem  jus- 
tified in  doing  it  all.  Where  a  clear  line,  mark- 
ing off  internal  state  interests  from  interstate,  can 
be  drawn,  internal  interests  are  left  to  the  states. 
But  there  is  a  decided  need  for  more  cooperation 
in  avoiding  duplication  of  expense  and  effort. 

Aside  from  the  post-office,  the  Federal  Gov- 


40  Government  Finance 

ernment  conducts  no  public  industry.  Possibly 
the  Panama  Canal  may  be  regarded  as  such,  but 
it  is  hardly  an  invasion  of  the  sphere  of  private 
industry.  Someone  may  wish  to  add  the  Federal 
Reserve  Banks  to  the  list.  Others  may  add  the 
offering  of  marine  insurance  against  war  risks. 
If  so,  I  should  raise  no  serious  objection.  Every 
little  while,  however,  some  project  for  federal 
industries  is  raised.  Notable  is  the  recent  pro- 
posal of  the  Postmaster  General  to  acquire  the 
telegraph  system,  and  again  the  ship  purchase 
bill  considered  by  Congress  in  1915.  It  is 
more  than  doubtful  whether  either  of  these 
activities  will  become  a  permanent  part  of  the 
business  of  the  Federal  Government,  but  if  they 
do  they  may  lead  rapidly  to  other  extensions. 

Efficiency  and  Economy 

The  questions  of  efficiency  and  economy  being 
in  the  main  common  to  all  branches  of  govern- 
ment—  federal,  state,  and  local  —  we  may  defer 
the  main  discussion  of  this  matter  to  another 
chapter.  So  far  as  particular  questions  relating 
solely  to  the  efficiency  and  economy  of  the  Fed- 
eral Government  arise,  they  arise  from  the  his- 
torical development  of  the  different  functions 
and  offices,  which  has  resulted  in  a  somewhat 
haphazard  and  arbitrary  grouping.  Some  de- 
partments embrace  services  very  diverse  in  char- 
acter, making  control  and  supervision  difficult. 
Some  bureaus  are  maintained  separately,  whose 


Our  Federal  Finances  41 

duties  and  work  could  be  transferred  entirely  to 
other  bureaus,  or  they  could  be  combined  with 
other  bureaus.  Many  local  offices  are  continued, 
the  need  for  which  has  largely  passed  away.  The 
chief  difficulty  of  effecting  these  changes  is  the 
question  of  patronage,  but  the  natural  inertia  of 
government  and  the  impossibility  of  establishing 
a  permanent  policy,  when  there  are  frequent 
changes  in  the  administration,  add  to  the  diffi- 
culty. 

The  Equation  of  Receipts  and  Expenditures 

As  a  general  principle,  governments  decide 
first  what  they  have  to  spend  and  then  adjust 
their  revenues  thereto.  There  have  been  times  in 
the  history  of  this  country  when  this  policy  has 
been  followed  by  the  Federal  Government.  This 
is  regularly  the  case  in  time  of  war.  Otherwise, 
it  has  been  the  case  only  in  the  so-called  free 
trade  periods,  or  at  rare  intervals,  when  the  tra- 
ditional ex})enditures  have  exceeded  the  revenues. 
The  trouble  has  been  that  a  large  part  of  the 
revenues  have  been  fixed  by  the  prevailing  policy 
as  to  the  tariff.  That  policy,  once  fixed,  deter- 
mines a  large  part  of  the  revenues  for  a  period 
of  years.  In  like  manner,  the  internal  revenue 
taxes,  especially  the  indirect  taxes  on  tobacco, 
beer,  and  spirits,  are  changed  only  at  considerable 
intervals.  Both  of  these  sources  of  revenue  are 
of  such  a  character  that  their  yield  cannot  be 
accurately  forecast.  Until  the  income  tax  was  es- 
tablished, there  had  been  no  "  elastic "  element 


42  Government  Finance 

in  the  tax  system,  and  so  great  apparently  is  the 
reluctance  to  develop  that  tax,  that,  even  since 
its  installation,  new  needs  have  been  met  by  nev^^ 
taxes  rather  than  by  an  adjustment  of  its  rates. 
The  result  of  this  has  been  that,  at  times,  the 
Federal  Government  has,  to  too  large  an  extent, 
adjusted  its  spending  to  its  revenues,  and  conse- 
quently there  have  been  years  of  extravagance 
and  waste.  Unfortunately,  in  government 
finance,  waste  is  not  easily  stopped  when  lean 
years  come.  Pensions  granted  directly  by  Con- 
gress under  the  old  rule  of  "you  help  me  and 
I'll  help  you"  run  on  long  after  the  pension  sys- 
tem has  been  reduced  to  the  comparatively  ex- 
cellent order  in  which  it  is  today.  The  way  to  a 
remedy  of  these  conditions  by  affording  Congress 
a  better  means  of  scrutinizing  expenditures  is 
opened  by  the  so-called  budget  system,  which  will 
be  considered  in  another  place. 

Federal  Debt 

The  debt  of  the  Federal  Government  is  com- 
paratively small.  The  interest-bearing  debt  is 
less  than  $1,000,000,000,  that  is,  less  than  one 
year's  expenses.  On  top  of  that,  we  owe  $375r 
000,000,  surreptitiously  borrowed  from  the  peo- 
ple without  interest  in  the  guise  of  circulating 
notes,  which  there  is,  unfortunately,  no  disposi- 
tion at  present  to  repay.  If  we  deduct  cash  on 
hand,  however,  we  have  a  net  debt  but  a  little 
over    the    $1,000,000,000    above    given;    $720,- 


Our  Federal  Finances  43 

000,000  of  this  bears  interest  at  only  two  per 
cent,  at  which  rate  it  is,  perhaps,  better  to  let  the 
debt  stand  than  to  take  the  money  away  from 
the  people  by  taxes  in  order  to  pay  it.     This 
serves,  moreover,  as  the  basis  for  our  national 
banking  system.    Disregarding  the  paper  money, 
deducting  cash  on  hand  and  regarding  the  two 
per  cent  bonds  as  burdenless  because  of  the  serv- 
ices they  perform,  we  might  say,  without  great 
impropriety,  that  Uncle  Sam  is  very  nearly  out 
of   debt.     At  all  events  the  debt  constitutes  a 
burden  scarcely  felt.     Nevertheless,  the  interest 
charge  is  $22,900,000,  a  sum  worth  considering. 
Comparison  with  other  countries  as  to  debts 
should  be  made  against  population  and  public 
revenues.    Accurate  comparisons  are  not  possible 
because  of  difference  in  the  forms  and  functions 
of   governments.      One    federal   government   or 
union  of  states  may  be  very  compact,  the  subor- 
dinate states  having  little  to  do,  while  another 
may   be   loose,   all   real   activity  vesting  in   the 
states.     In  the  latter  case  the  debts  may  be  state 
debts,  not  federal.     A  country  which  owns  and 
operates    its    railroads    and    other   industries    is 
likely  to  owe  more  than  one  which  does  not, 
and  it  can  carry  the  debt  more  easily.     In  some 
countries,  like  our  own,  the  burden  of  debt  is 
local.     To  unravel  the  intricacies,  and  to  obtain 
figures  which  would  be  strictly  comparable,  is  a 
task  so  enormous  that  no  one  has  ever  under- 
taken it.     Accounts  also  differ  from  country  to 
country.     The  following  table  is  therefore  nec- 
essarily rough : 


44 


Government  Finance 


O    K 


bo  O 
be 

CS 

bO 
O 


O 


2  !3 

•O  ^  t: 

•c 

•O   -rj       1 

«J     S     G     (U     3 

'o  'o 

"o  "b    o    o    o    o 

*-t-l     M-t 

M-t      M-)      M-l      *+-t      MH      M-t 

H  <   '^     « 

(TJ    0\ 

1-1     I-;     ro   t^  00     q 

ro  ^ 

oi    -"t  -^  oi    r^   ►-; 

^ 

O     O 

O     O     Q     O     O     O 
O     O     O     O     O     Q 

o    o   o    o_^  o__  q^ 

<U     in 

°  8 

rri  i-T 

oo"  ^  di  "   (5  lo 

H     b 

NO     'i- 

00     ^  00     CN)     CS     r^ 

3     2 

C^     rn 

00    00     1-1     TT    C)    00 

gS 

vd"  vo 

NO     fO    >-i     t^    On    (N« 

m  00 

-1     O     (^    O     1-1     C< 

< 

"    " 

(N     1-1            C>4     >-. 

c« 

8  9 

O     O     O     O     O     O 
O     O     Q     Q     O     O 
O     O     O     O^    O     O 

*f  ^f 

t^  o    d  CO   in  o 

"    o 

t^   O     ro   fO    q    o 

o   q_  <N    q  00   o 

LO   VO 

OO    of    of    -^00    o" 
NO    1-1    0\   t^   1-1    o 

w_^    On 

ro   lO   0)   NO    On    0_^ 
of               i-<"         i-T 

W- 

1-. 

P.  B 

lo  r^ 

O     tT    On   lO  NO    lO 

q\  00 

l^  00     t>.    1-    rr    lO 

X3    ,« 

lO    Os 

u=i   On    OO  00    r-^    6 

r^  lo 

t^    t^    0)      0)     t^     w 

<u  U 

<«•  '^ 

Q 

1 

c 

o   o 

O     O     O     O     O     O 

o 

o    o 

o   o   o   o   o   o 

'^ 

o   o 

0     0     0,000 

a! 

8  8 

8  |8  8 §1 

o 

On    cK 

rf    0-)    0<     O     »0    -"J- 

CLh 

rr    c^ 

NO     ro   ID  NO     ■<3-    ON 

Q     O 
Q     O 

Q     O     O     O     Q     Q 
5     O     O     Q     O     O 

o    o   o    5   o    o 

•o 

6    q_ 

<u 

o"  "^ 

o  c 

h   t^  00  00     o 

o    t^ 

0)     C 

On  00    1-1     O 

1-  ^ 

O   NO^ 

0^  NC 

On    ^  00    O 

O     i> 

of    r<0 
uo  OO 

CO  NO    i-T   CO  lo  o 
1-1    O     t   to  00    o 

t^    0) 

On   t^   0)    ir,    rf   o 

fO   NO 

TT    0<    w     -rr   CO    "I      1 

<<9- 

1 

<U 

E    • 

c 

3 

c 

'S, 
S 
W 

C    rt 

O 

U 

.2      4J      § 

rt  -o  T3      1 

U      U      ™ 

13 

C   -r?     ^    <U       1 

t;;     G 

G 

G     > 
t-i 

1    rt 

»— 

^c^ 

II, 

Our  Federal  Finances  45 

This  table  should  be  used  with  great  caution. 
Thus  for  example,  the  German  debt  and  revenues 
include  the  money  borrowed  for  and  to  be  paid 
for  by  the  state  railroads.  To  that  extent  it  is 
offset.  The  debt  of  the  United  Kingdom  is  heav- 
ier than  appears  for  it  was  incurred  for  services 
to  the  whole  empire  and  yet  bears  on  the  rev- 
enues of  the  British  Islands  only.  England  has 
very  heavy  local  debts  in  addition  to  these  shown, 
while  France  has  very  small  local  debts.  The 
states  of  the  German  Empire  perform  functions 
which  in  England  are  performed  by  the  Im- 
perial Government,  in  part,  and  in  part  by  the 
colonies.  The  debt  of  Russia  looms  large  in  the 
aggregate,  but  compared  with  natural  resources 
and  territory  is  probably  less  burdensome  than 
that  of  Japan.  The  debt  of  France  is  probably 
mostly  held  at  home,  while  that  of  the  other 
countries  is  scattered.  A  multitude  of  other 
considerations  affect  almost  every  comparison 
which  might  be  attempted. 

A  safe  conclusion  is  that  the  debt  of  the 
United  States  is  very  light,  and  that  of  England 
and  France  very  heavy  indeed.  At  the  same 
time  the  common  idea  that  all  European  public 
debts  are  so  enormous  as  to  be  utterly  beyond  re- 
payment is  clearly  in  error.  France,  the  worst 
case,  could  pay  her  debt  in  fifty  years  by  adding 
only  $3.00  per  capita  to  her  annual  taxes.  A  fur- 
ther discussion  of  other  public  debts  will  be 
found  in  another  chapter. 


CHAPTER  V 

STATE    AND    LOCAL    FINANCE,    EXCLUSIVE    OF 
MUNICIPAL 

VJ^  E  now  leave  the  field  of  federal  finance  and 
come  to  that  of  the  finances  of  the  states  or 
commonwealths  and  of  their  traditional  political 
sub-divisions.  In  New  England,  and  in  states  re- 
ceiving their  traditions  from  New  England,  these 
sub-divisions  are  the  towns,  with  counties  formed 
for  certain  very  limited  purposes.  Generally  the 
counties  are  only  judicial  districts.  In  the  South 
the  subdivisions  are  the  counties.  In  other  parts 
of  the  country  we  find  a  combination  in  various 
ways  of  counties  and  towns. 

Although  the  large  cities  perform  the  duties 
of  those  subdivisions  of  the  state,  the  towns,  or 
counties,  with  which  they  are  in  each  state  cor- 
related, yet  they  have  also  a  large  degree  of  home 
rule,  which  makes  their  financial  problems  some- 
what different  from  those  of  the  states  and  their 
other  subdivisions.  We  therefore  reserve  the 
cities  for  another  chapter.  In  this  chapter  we 
shall  examine  the  states'  finances  mainly,  but  we 
shall  glance,  also,  at  county  and  district  problems. 

While  the  Federal  Government  has  been  stead- 
ily encroaching  on  the  domain  originally  re- 
served for  the  states,  the  latter  have  not  been 

46 


State  and  Local  Finance  47 

losing  at  all  in  importance  and  in  costliness. 
They  have  greatly  enlarged  and  developed  those 
activities  which  were  originally  theirs,  have 
found  new  things  to  do,  and  have  assumed,  in 
many  parts  of  the  country,  activities  which  were 
originally  local.  I  am  personally  of  the  opinion 
that  there  is  more  real  growth  in  state  activities 
than  in  those  of  any  other  part  of  our  govern- 
ment. By  that  I  mean  that  the  things  they  are 
now  taking  over  will  prove  in  their  ultimate  ex- 
pansion more  fundamentally  important  to  the  fu- 
ture development  of  the  country  than  the  recently 
assumed  functions  of  any  other  branch  of  gov- 
ernment. 

The  states'  original  activities,  while  not  the 
same  in  any  two  states,  and  although  differing 
very  widely  in  some  cases,  embraced  in  most 
cases  the  following:  the  support  of  the  legis- 
lature, the  higher  courts,  the  executive  depart- 
ments, including  the  governor,  the  secretary  of 
state,  the  financial  officers,  the  attorney  general, 
and  the  state  militia.  In  1796,  the  average  ex- 
penditures of  the  fifteen  states  were  less  than 
$70,000  apiece,  and  the  total  about  $1,000,000 
for  all  fifteen.  In  1902,  the  states  and  territories 
were  spending  $186,000,000.  In  19 13  they  were 
spending  $383,000,000 — a  phenomenal  increase. 
What  the  counties  and  minor  civil  divisions,  in- 
cluding cities  other  than  those  over  25,000  inhab- 
itants, were  spending  in  1796  we  do  not  know, 
but  in  1902  they  were  spending  $502,000,000. 
As  the  cities  over  25,000  spent  $469,000,000  in 


48  Government  Finance 

addition,  in  1902  the  states'  proportion  was  a 
little  over  sixteen  per  cent  of  all  public  money 
spent,  exclusive  of  federal  expenses.  By  1912 
the  big  cities  were  spending  nearly  $900,000,000 
of  revenues  alone  and  much  more  of  borrowed 
money.  In  1913  the  counties  were  spending 
$385,000,000  and  incorporated  places  over  2,500 
inhabitants  $1,247,000,000. 

The  census  bureau  lists  the  expenses  for  func- 
tions performed  in  1902  as  follows:  legislature, 
chief  executive  offices,  offices  of  secretary  of 
state,  law  offices,  finance  offices,  miscellaneous 
general  government  offices,  courts,  buildings  and 
sites,  military,  police  and  inspection,  health,  con- 
servation, sewers  and  drainage,  highways,  char- 
ities, insane,  penal  institutions,  education,  includ- 
ing common  schools  and  state  institutions,  parks 
and  recreation,  agriculture,  interest,  and  state 
commercial  industries. 

This  is  a  formidable  list,  and  yet  since  1902, 
state  expenditures  have  very  greatly  increased. 
The  changes  in  the  last  decade  have  been  along 
the  following  lines,  but  not,  of  course,  the  same 
in  every  state.  Among  the  financial  offices  have 
come  many  new  state  tax  commissions,  which 
supervise  the  revenues,  state  boards  of  control 
taking  over  the  supervision  of  expenditures,  or 
even  the  management  of  state  institutions  which 
were  formerly  conducted  by  separate  boards. 
Among  the  miscellaneous  general  offices  have 
come  the  new  railroad  commissions,  and  the  new 
public  utility  commissions  which  have  risen  into 


State  and  Local  Finance  49 

great  importance.  So  also  have  the  labor  bureaus 
stepped  up  from  relative  obscurity.  Industrial 
accident  boards  have  developed,  and  bank  super- 
vision has  become  more  important  and  effective. 
The  health  office  has  become  a  live  bureau  where 
it  was  merely  a  quarantine  office  before.  Other 
bureaus  have  arisen. 

State  aid  to  education  varies  greatly.  In  some 
states  the  state  raises  the  greater  part  of  the 
support  of  the  common  schools  and  passes  the 
money  over  to  the  school  districts.  In  other 
cases  the  state  does  very  little,  leaving  the  com- 
mon schools  primarily  to  the  care  of  the  local- 
ities. Nearly  every  state  has,  at  least,  a  state 
school  fund  in  a  capital  sum,  the  interest  of  which 
goes  to  the  schools. 

The  prevailing  principle  today  seems  to  be 
that  the  state  contributes  an  amount  held  to  be 
sufficient  to  ensure  a  uniform  minimum  of  school- 
ing for  every  child,  but  leaves  a  large  part  of 
the  burden  of  making  the  schools  better  than 
the  minimum  to  the  school  districts  or  local  gov- 
ernments. It  is  held  by  good  authorities  on 
school  finance  that  too  little  is  done  by  the  states 
and  too  much  left  to  the  districts.  Until  the 
states  develop  wider  taxing  powers  than  they 
now  exercise  this  cannot  well  be  changed.  The 
states  today  sometimes  aid  the  high  schools.  They 
did  little  for  them  before  1902.  They  very  gen- 
erally provide  normal  schools.  Many  now  sup- 
port state  universities  or  at  least  agricultural 
colleges.     The  normal  schools  and  the  universi- 


50  Government  Finance 

ties  receive  today  manyfold  what  they  did  in 
1902. 

Among  the  recent  developments  have  also  been 
state  highways,  increased  expenditure  for  health 
conservation,  increased  expenditures  for  char- 
ities, such  as  mothers'  pensions,  and  correctional 
adjuncts  to  the  penal  system. 

In  all  states  there  has  been  a  development  of 
the  old  existing  activities  which,  of  itself,  has 
trenched  on  the  domain  of  the  local  govern- 
ments, but  in  many  there  has  been  a  distinct  tak- 
ing over  of  functions  from  the  local  govern- 
ments. In  every  state  in  the  Union  new  state 
functions  have  arisen. 

In  no  case  have  local  expenditures  been  much 
reduced.  There  may  be  exceptions,  of  course, 
but  as  a  rule,  when  the  states  have  relieved  the 
local  governments  of  any  burden,  the  local  gov- 
ernments have  gone  ahead  and  assumed  new 
burdens. 

This  results  in  a  perpetual  rolling  up  of  state 
expenses  and  taxes,  and  of  county  and  local 
expenses  and  taxes,  the  end  of  which  is  by  no 
means  in  sight.  Even  with  complete  data  of 
recent  date  as  to  the  amounts  of  state  and  local 
expenses  at  hand,  in  the  1913  census  reports  the 
diversities  of  state  governmental  organization 
and  of  economic  conditions  render  averages  dan- 
gerously misleading  and  comparisons  impossible. 
To  attempt  to  cover  the  whole  country  as  to  state 
expenditures  would  be  tedious,  and  would  re- 
quire more  space  than  we  have  at  our  disposal. 


State  and  Local  Finance  51 

But  we  may  examine  some  few  states  which  offer 
interesting  data. 

Examples  of  State  Finance 

There  was  a  time  when  the  salary  of  the  Gov- 
ernor of  Rhode  Island  was  only  $1,000  per 
annum,  and  the  office  was  cheerfully  bestowed 
upon  any  opulent  New  Yorker  who  would  honor 
the  state  and  himself  by  taking  up  a  residence 
in  his  summer  home  at  Newport.  The  salary  of 
$1,000,  with  the  honor  and  dignity  of  the  office, 
more  than  adequately  paid  for  the  services  re- 
quired of  his  Excellency,  for  all  important  gov- 
ernmental activities  were  performed  in  the  towns. 
Today,  that  smallest  of  all  states,  once  regarded 
as  a  mere  federation  of  independent  towns  with 
little  central  organization,  has  developed  a  rela- 
tively large  amount  of  commonwealth  activities. 
State  expenses  have  risen  rapidly  —  most  rapidly 
in  the  last  two  decades.  In  1887  that  state  spent 
$850,000.  In  1913,  the  expenses  were  $3,500,- 
000.  The  importance  of  the  state's  activities  has 
increased  the  governor's  duties  so  that  he  now 
receives  a  salary  of  $3,000.  Of  the  $3,500,000 
spent  in  19 13,  many  items  seem  to  be  invasions 
of  the  sphere  of  action  formerly  reserved  for  the 
towns.  Thus  while  the  towns  and  cities  still 
carry  the  main  cost  of  the  schools,  the  state  con- 
tributed about  $200,000  for  high  schools,  com- 
mon schools,  and  similar  educational  affairs.  It 
also  spent  $290,000  for  state  roads,  $240,000  for 
bridges,  and  $250,000   for  normal   schools  and 


52  Government  Finance 

other  forms  of  higher  education.  While  the 
state's  share  of  expenses  has  been  growing,  the 
expenses  of  the  cities  and  towns  have  not  de- 
cHned.  Providence  alone  is  spending  $10,500,- 
000,  or  three  times  what  the  state  spends.  In 
1903,  Providence  spent  $4,800,000. 

Crossing  the  continent,  we  come  to  California, 
which  has  an  entirely  different  historical  growth 
of  state  and  local  activities.  Here  the  state  al- 
ways came  first,  and  the  counties,  road,  and 
school  districts,  and  cities,  theoretically,  merely 
carried  out  the  orders  of  the  state.  Yet  in  Cali- 
fornia we  find  the  state  spending  $27,780,000 
(exclusive  of  highways  being  built  by  state 
bonds),  and  all  other  units  of  government  $117,- 
000,000  ;  or,  if  we  transfer  the  $6,000,000  which 
the  state  collects  for  schools  and  hands  over  to 
the  districts  to  spend,  the  ratio  is  about  $22,000,- 
000  to  $123,000,000.  As  California  has  four  and 
one-half  times  the  population  of  Rhode  Island, 
the  state's  expenses  as  distinct  from  those  of 
the  counties  and  cities,  are  about  double  those  of 
Rhode  Island  per  capita.  But  the  counties  and 
cities  have  also  a  large  amount  of  governmental 
work  to  do  as  is  shown  by  the  large  expenditures. 

Thus  by  two  different  roads  these  two  states 
are  arriving  at  the  same  goal.  Rhode  Island  by 
absorbing  functions  originally  local,  and  Cali- 
fornia by  enlarging  and  emphasizing  state  func- 
tions, both  arrive  at  a  very  similar  division  of 
expenses  between  the  state  and  the  local  govern- 
ment. 


State  and  Local  Finance  53 

Yet  the  difference  in  traditions  as  to  the  im- 
portance of  the  state  government  is  exemplified 
by  the  salary  of  $10,000  paid  the  Governor  of 
California,  in  addition  to  which  his  dignity  is 
recognized  by  a  "  mansion,"  with  $10,000  for  its 
upkeep,  $5,000  for  traveling  expenses,  an  auto- 
mobile and  chauffeur,  all  from  the  state's 
treasury. 

As  California  has  adopted  very  many  of  the 
new  "  progressive  "  things  in  state  government, 
it  will  be  interesting  to  see  how  much  they  cost. 
The  figures  which  follow  are  all  for  the  years 
1904  and  1914.  In  every  case  the  smaller  amount 
is  for  1904.  In  some  respects  the  increases  are 
not  as  important  as  they  appear,  because,  of 
course,  the  state  has  grown  in  population  and 
in  wealth.  Then,  too,  the  general  level  of  prices 
and  wages  has  gone  up.  Hence  a  seventy-five 
per  cent  increase  might  be  considered  inevitable. 

The  cost  of  the  judicial,  executive,  and  admin- 
istrative departments  increased  from  $783,000 
to  $1,231,000.  Most  of  this  is  the  result  of  more 
work  falling  on  these  departments  in  conse- 
quence of  the  increase  in  other  state  activities. 
There  are  new  courts,  and  the  "board  of  con- 
trol "  which  took  the  place  of  the  old  board  of 
examiners  costs  $185,000  (less  transfers  from 
other  fields,  $32,000),  against  $20,000  for  the 
old  board. 

"  Regulative  "  activities  increased  in  cost  from 
$86,000  to  $1,143,000.  These  are  largely  new. 
The  old  railroad  commission  cost  $20,000,  the 


54  Goz'crnnient  Finance 

new  one  costs  $306,000  and  is  asking  for  $200,- 
000  more  next  year  for  new  duties  which  were 
imposed  on  it  by  popular  vote.  A  member  of  the 
old  commission  said  his  office  meant  "  $4,000  a 
year  and  not  a  thing  to  do."  The  new  commission 
has  no  sinecure.  It  actually  regulates  all  public 
utility  rates  and  the  issuance  of  securities  by 
utility  companies.  Its  work  is  very  highly  es- 
teemed. Regulating  banks  now  costs  $94,000 
against  $24,000.  The  board  of  health  costs 
$113,000.  It  used  to  cost  $23,000,  but  it  now 
enforces  the  pure  food  and  drug  law.  The  labor 
bureau  used  to  cost  $8,000,  and  now  $50,000. 

Brand  new,  regulative  commissions,  or  boards, 
costing  $527,000  have  been  created.  They  are 
for  "  water  control,"  "  industrial  accidents " 
(which  costs  $440,000,  but  of  this  $350,000  is  the 
insurance  fund  which  will  sustain  itself),  "  immi- 
gration and  housing,"  "  veterinary  medical  ex- 
aminer," and  the  "  civil  service  commission." 

The  largest  increase  came  in  the  "constructive  " 
group.  Harbor  improvements  and  highways  cost 
$6,286,000  in  1914  against  $912,000  in  1904.  A 
large  part  of  this  is  "  outlay,"  or  supposed  to  be 
an  investment. 

Education  receives  an  increase  from  $4,919,- 
000  to  $9,517,000  in  the  aggregate.  Free  text- 
books account  for  about  $300,000  of  this.  Then, 
there  are  new  normal  schools  and  other  schools 
costing  $1,087,000.  The  rest  of  the  increase  is 
distributed  between  the  elementary  schools,  the 
high    schools    and    the    university.      The    high 


State  and  Local  Finance  55 

schools  have  relatively  the  largest  increase. 
Roughly  speaking  the  increase  for  education 
along  lines  existing  ten  years  ago  is  from  $5,000,- 
000  to  $8,000,000.  This  is  a  low  rate  of  increase 
if  we  allow  seventy-five  per  cent  for  normal 
growth.  Of  course,  these  activities  start  from 
a  larger  base,  they  were  already  well  grown  ten 
years  ago.  It  is  not  fair  to  contrast  them  with 
activities  practically  new,  which  start  from  noth- 
ing or  almost  nothing.  But  yet,  as  they  too  have 
many  new  things  to  do,  they  are  really  lagging 
behind  seriously.  The  efifective  relative  growth 
is  only  about  ten  per  cent  in  ten  years.  It  is 
characteristic  of  popular  government  to  love  the 
youngest  child  best.  Hence  old  established  activ- 
ities have  to  look  out  for  themselves,  or  often 
go  uncared  for. 

"  Developmental "  activities,  including  agricul- 
tural societies,  the  fish  commission,  and  a  recla- 
mation board,  increased  in  cost  from  $151,000 
to  $623,000. 

"Curative"  work,  mostly  the  care  of  the  in- 
sane, costs  $2,393,000  against  $1,041,000. 

Reformatories  grew  in  cost  from  $171,000  to 
$376,000.  Prisons  grew  from  $584,000  to 
$1,113,000. 

The  Militia  required  $574,000  in  1914,  it  had 
only  $155,000  in  1904. 

Benevolence,  on  the  support  of  orphans  and 
half -orphans,  shows  an  actual  decrease  from 
$500,000  to  $400,000.  This  decrease  and,  what 
is  more  startling,  this  failure  to  increase,  together 


56  Government  Finance 

mark  two  important  changes.  .  First,  "  graft " 
has  been  eHminated ;  second,  the  whole  activity 
has  ceased  to  be  a  "  charity  "  and  has  become 
"  curative."  This  expense  includes  "  mothers' 
pensions,"  since   1913. 

The  total  of  all  the  above  items  increased  from 
$9,500,000  to  $24,000,000. 

As  stated  above,  the  same  tendencies  are  to  be 
found  all  over  the  United  States.  It  is  only  a 
matter  of  degree  in  different  states. 

In  the  first  period  of  the  coming  development, 
the  greatest  increase  in  cost  will  be  for  the  "  regu- 
lative," "  constructive,"  and  "  development  " 
activities.  Educational  and  benevolent  activities 
will  practically  stand  still,  unless  their  represent- 
atives exert  themselves  more  than  they  are  now 
doing.  "  Curative,"  "  correctional,"  and  "  penal  " 
activities  are  also  hampered  because  relatively 
older  than  the  "  regulative." 

With  many  important  differences  in  detail,  the 
same  general  trend  is  to  be  found  well  exempli- 
fied in  Wisconsin. 

Since  all  these  new  activities  "make  good," 
there  is  little  doubt  that  they  will  spread  from 
state  to  state. 

Kentucky  affords  an  example  of  still  another 
variety  of  state  government.  With  compara- 
tively little  expansion  of  state  activities  proper, 
which  are  as  near  the  minimum  as  possible,  the 
financial  weakness  of  the  counties  has  forced 
the  state  to  take  up  more  and  more  of  local  ex- 
penses.   Some  of  the  counties  are  known  locally 


State  and  Local  Finance  57 

as  "  pauper  counties "  because  they  receive  so 
much  more  toward  local  expenses  than  they  pay 
to  the  state.  The  state  pays  a  large  part  of  the 
support  of  the  assessors,  county  clerks  and 
sheriffs,  local  courts,  local  attorneys,  and  of  the 
costs  of  criminal  prosecutions,  and  also  a  very 
large  part  of  the  support  of  schools. 

Minnesota  is  interesting  as  affording  an  exam- 
ple of  a  state  in  which  there  is  a  decidedly  close 
interrelation  between  state  and  local  finance. 
The  state  paid  out  in  191 1,  $16,600,000,  the  coun- 
ties $41,800,000,  the  local  governments  $47,500,- 
000,  a  total  of  nearly  $106,000,000.  But  these 
payments  include  duplications.  Stripped  down 
to  net  cost  payments,  the  figures  are:  state,  $11,- 
000,000 ;  counties,  $9,300,000 ;  local,  $46,700,000 ; 
a  total  of  $67,000,000.* 

The  large  difference  between  one  hundred  and 
six  millions  gross  payments  and  sixty-seven  mil- 
h'ons  net,  illustrates  the  difficulty  inherent  in  all 
these  figures.  In  Minnesota  nearly  half  of  the 
state's  revenues  go  for  educational  purposes, 
including  the  university,  $2,740,000  (1912),  pub- 
lic schools  $1,550,000,  normal  schools  $455,000. 

In  19 12  the  state  spent  on  its  main  disburse- 

*  Professor  Robinson,  whose  figures  these  are,  arrives 
at  the  further  conclusion  that  the  actual  taxes  paid,  at 
the  tax  rates  of  191 1,  by  a  family  of  five  owning  $4,000 
of  property,  were:  $4.59  for  state  government,  $6.08 
for  county,  $24.41  for  local  governments ;  but  as  a 
large  part  of  the  $24.41  is  paid  only  by  residents  of 
cities,  we  may  not  add  these  averages  together  to  form 
a  total.  This  is  an  interesting  example  of  the  intricacy 
of  tax  statistics. 


58  Government  Finance 

ments  from  revenue  $10,734,000.  In  1902  the 
state  spent  for  the  same  class  of  things  only 
$3,734,000.  That  is,  $7,000,000  more  in  ten 
years.  Population  increased  about  one-fifth, 
state  expenses,  nearly  three-fold.  But  the  inter- 
esting thing  is  the  expansion  of  new  duties.  The 
list  is  very  instructive:  a  tax  commission,  high- 
way commission,  bureau  of  immigration,  fire 
marshal,  superintendent  of  banks,  live  stock  sani- 
tary board,  oil  inspection,  sanitorium  for  con- 
sumptives, hospital  for  crippled  and  deformed 
children,  industrial  school  for  girls,  war  pensions, 
art  society,  board  of  visitors  to  state  institutions, 
hospital  for  inebriates,  weights  and  measures 
department,  and  hotel  inspector.  There  were 
also  a  new  capitol  and  additions  to  the  university. 

Minnesota  has  an  unusually  well-ordered  finan- 
cial system  throughout,  and  the  revenues  are  well 
managed.  It  is,  hence,  all  the  more  interesting 
to  note  that  the  Minnesota  people  are  not  con- 
tent to  have  one  of  the  best  financial  systems  in 
the  country.  They  want  to  make  it  still  better. 
A  large  commission  on  "  efficiency  and  economy," 
appointed  by  the  Governor,  has  just  rendered  a 
report  urging  further  improvement. 

Massachusetts  is  a  state  where  the  traditions 
place  the  chief  burdens  of  government  on  the 
local  units,  the  towns  and  cities.  The  auditor's 
estimate  for  1914  called  for  only  $17,750,000  of 
state  funds.  Of  this,  $5,600,000  was  for  charita- 
ble purposes,  and  only  $1,750,000  for  educational 
purposes.    As  Boston  alone  spent  $58,000,000  in 


State  and  Local  Finance  59 

1912,  Worcester  $8,500,000,  Fall  River  $4,500,- 
000,  Lowell  $4,200,000,  New  Bedford  $7,000,000, 
Springfield  $5,000,000,  and  Lynn  $4,500,000,  the 
state's  expenses  seem  small  by  comparison.  Yet 
the  state  directs  some  important  local  activities, 
like  the  great  metropolitan  water  works  and 
parks  and  sewer  systems,  which  are  listed,  not  as 
state,  but  as  local  activities. 

New  York,  also,  throws  the  burden  of  govern- 
ment mainly  on  the  local  units.  The  state's  ex- 
penses were  about  $52,000,000  in  1913;  but  the 
local  governments  raised  in  revenues  alone,  with- 
out including  borrowed  money,  nearly  $300,000,- 
000.  In  his  1912  report  the  Controller  makes 
some  interesting  comments  on  the  growth  of 
state  expenses.  He  calls  attention  to  the  fact 
that  the  revenues  were  $36,600,000  in  1910,  and 
$52,400,000  in  19 1 3.  The  amount  expended  for 
the  advancement  of  agriculture  had  grown  in 
ten  years  to  $2,000,000  on  180  per  cent,  al- 
though population  had  grown  only  twenty-five 
per  cent.  The  state's  offerings  for  education, 
exclusive  of  the  fund  for  the  support  of  the  com- 
mon schools,  which  was  $5,000,000,  amounted  to 
$4,000,000,  an  increase  of  400  per  cent  in  ten 
years.  State  hospitals  and  related  institutions 
received  $7,350,000  in  1912,  an  increase  of  fifty 
per  cent  in  ten  years ;  charities  received  $3,000,- 
000,  an  increase  of  sixty  per  cent,  and  public 
works  $4,500,000,  an  increase  of  470  per  cent. 
This  array  of  percentages  is  formidable.  But 
$2,000,000  for  agriculture  in  a  state  of  10,000,- 


6o  Government  Finance 

ooo  people  is  only  twenty  cents  apiece,  and  the 
other  items  are  not  yet  \a.rgt  compared  with  what 
any  one  of  the  progressive  states  are  doing. 

New  York  contributes  from  state  funds 
$9,000,000  to  education  out  of  $52,000,000  spent 
by  the  state  for  all  purposes  or  seventeen  per  cent, 
while  Minnesota  contributes  from  state  funds 
$8,000,000  out  of  $16,600,000,  or  nearly  half. 

Illinois,  like  New  York,  is  backward  and  pro- 
vincial, and  affords  us  an  example  of  a  state 
whose  fiscal  system  is  very  old-fashioned.  With 
the  exception  noted  below,  the  states  activities 
are  limited  to  the  bare  maintainance  of  the 
framework  of  a  government.  The  "  Fairlie " 
Tax  Commission  of  1910  said  of  it :  "  The  pres- 
ent situation  has  developed  in  a  desultory  way, 
with  little  effort  at  any  correlated  system." 

The  auditor's  reports  show  a  total  of  state  ex- 
penditures of  $26,000,000  for  the  two  years  end- 
ing September  30,  1912,  or  an  average  of  $13,- 
000,000  yearly.  This  includes  a  contribution  of  a 
million  and  a  half  annually  to  the  local  schools, 
and  two  million  and  a  quarter  for  other  educa- 
tional purposes.  Not  quite  as  much  goes  for 
charities.  The  total  includes  about  $850,000  an- 
nually for  local  bonds.  Data  on  all  local  ex- 
penses are  not  available.  The  total  of  all  taxes, 
state,  county,  and  city,  exclusive  of  special  assess- 
ments, which  often  become  very  nearly  true 
taxes,  is  reported  as  $96,000,000  in  191 1.  But  as 
this  is  exclusive  of  non-tax  revenues  it  is  below 
the  total  expenditures.    The  tax  revenues  of  the 


State  and  Local  Finance  6i 

state  are  only  eight  and  six-tenths  per  cent 
of  the  total  taxes  levied.  The  burden  of  govern- 
ment falls  on  the  counties  and  school  districts. 

Small  as  these  expenditures  seem  for  a  great 
state  with  nearly  6,000,000  people,  they  show 
signs  of  growth.  The  general  state  tax  levy  was 
raised  in  191 1  from  $5,100,000  to  $7,750,000,  and 
the  state's  contribution  to  schools,  which  is  in 
addition  to  this,  was  increased  from  $1,000,000 
to  $2,000,000.  The  increases  seem  to  be  dis- 
tributed over  all  departments. 

These  illustrations,  scanty  as  they  are,  show 
very  clearly  the  diversities  of  governmental  or- 
ganization in  the  various  states.  They  show, 
also,  that  comparisons  are  very  difficult  to  make. 
The  figures  given  in  the  published  reports  are  not 
easy  to  interpret. 

One  thing,  however,  is  clear.  State  expenses 
are  everywhere  growing,  perhaps  not  more 
rapidly  than  local  expenses,  but  growing  in  direc- 
tions which  will  call  for  larger  expenses  still. 
There  are  everywhere  three  lines  of  increase: 
( I )  The  state  governments  are  doing  on  an  ever 
increasing  scale  those  things  which  they  did  be- 
fore ;  (2)  State  governments  are  developing  func- 
tions, mostly  "  regulative  "  and  "  developmental," 
which  no  branch  of  government  exercised  be- 
fore; (3)  State  governments  are  taking  over 
from  the  local  governments  in  whole  or  in  part 
duties  which  used  to  be  regarded  as  local.  Rut 
the  saving  to  the  local  governments  is  more  than 
absorbed  by  their  increases  in  activities. 


62  Government  Finance 

The  great  items  of  local  expenditures,  leav- 
ing out  cities  of  over  8,000  inhabitants,  are  for 
schools,  highways,  and  charities.  School  control 
by  districts  has  been  condemned  as  "  expensive, 
shortsighted,  inefficient,  inconsistent,  and  un- 
progressive ;  it  leads  to  great  and  unnecessary 
inequalities  in  schools,  terms,  educational  advan- 
tages, and  to  an  unwise  multiplication  of  schools ; 
the  trustees,  because  they  hold  the  purse  strings, 
frequently  assume  authority  over  matters  which 
they  are  not  competent  to  handle ;  and  most  of 
the  progress  in  rural  school  improvement  has 
been  made  without  the  support  and  often  against 
the  opposition  of  the  trustees  and  the  people  they 
represent."  * 

The  remedy  proposed  is  a  larger  supervisory 
and  taxing  district,  "  preferably  the  county." 

In  so  far  as  it  is  urged  that  more  money  is 
needed,  and  that  "it  cannot  well  cause  an  in- 
crease in  district  taxation,"  the  argument  is 
faulty.  If  the  districts  cannot  afford  to  pay 
more  per  se,  how  can  the  difficulty  be  removed 
by  merely  combining  districts?  In  so  far,  how- 
ever, as  a  larger  unit  may  reduce  duplications 
and  increase  efficiency,  the  argument  is  cogent. 
It  means  having  more  money  by  eliminating 
waste.  The  school  men  have  not  discovered  the 
proper  remedy,  which  is  given  in  the  last  chapter 
of  this  book. 


*  Professors  Cubberly  and  Elliott,  School  and  Society, 
Jan,  30,  1915. 


State  and  Local  Finance  63 

Road  district,  or  township  control  of  highways 
is  even  more  open  to  criticism  than  school  dis- 
trict control  of  schools.  All  the  adjectives  of 
opprobrium  hurled  at  the  school  districts  by  the 
critics  just  quoted,  may  be  repeated  as  to  road 
districts.  Here  the  remedy  is  being  applied.  The 
state  is  stepping  in  to  build  the  roads,  but  the 
problem  of  paying  for  them  is  still  far  from 
being  permanently  solved.  It  appears,  however, 
that  the  present  solution  is  to  charge  the  expense 
the  state  incurs  back  to  the  property  or  to  local 
units  benefited. 

The  town  poorhouse,  or  even  the  county  poor 
farm,  has  seldom  been  a  credit  to  our  civilization. 
State  aid  for  the  poor  and  aged,  handed  down 
to  the  local  authorities  to  spend,  has  not  wrought 
much  improvement.  State  boards  of  charities 
have  too  often  been  perfunctory.  But  the  pres- 
ent trend  is  toward  effective  state  control,  which 
may  work  an  improvement.  With  this  the  state 
assumes  a  larger  share  of  expense  and  further 
strains  its  resources. 

Prisons,  reformatories,  asylums  for  the  insane 
and  defectives,  schools  for  the  deaf  and  blind, 
have  generally  been  state  affairs.  But  local  jails 
are  mostly  bad  and  badly  managed.  Cities  are 
moving  to  improve  these,  but  county  and  rural 
jails  are  almost  uniformly  unsanitary  and  ex- 
travagantly managed.  Sooner  or  later  central 
control  will  be  demanded  here,  again  an  increase 
in  state  expense. 

All  along  the  line  we  find  that  the  future  prom- 


64  Government  Finance 

ises  to  enlarge  still  further  the  sphere  of  the 
state.  But  there  is  also  little  hope  that  the  bur- 
den of  local  taxation  will  correspondingly  de- 
crease. The  counties  and  towns  too  will  be 
called  on  for  larger  activities. 

Another  development  is  also  in  sight.  Central 
control  of  local  taxation  is  coming.  It  has 
proved  its  usefulness  wherever  it  has  been  tried. 
It  will  eventually  be  the  rule.  But  central  con- 
trol of  taxation,  without  some  control  of  spend- 
ing, is  only  half  effective.  It  is  not  enough  to 
make  sure  that  taxes  are  properly  apportioned ; 
the  burden  may  nevertheless  be  unbearable. 
Control  of  local  expenditures,  at  least  to  the 
extent  of  eliminating  duplication  and  waste,  is 
the  second  half.  As  the  state  begins  to  share  in 
what  have  been  local  activities  and  expenses,  it 
will  begin  to  assert  a  right  to  have  a  voice  in  the 
local  work  along  the  lines  into  which  it  enters. 

But  although  we  may  look  forward  to  greater 
economy,  we  must  not  lose  sight  of  the  fact  that 
needs  are  growing  and  multiplying.  More  and 
evermore  money  will  be  needed.  The  general 
property  tax  is  in  many  places  strained  to  the 
breaking  point.  New  sources  must  be  found. 
The  only  effective  source  in  the  long  run  will  be 
income  taxes.  Through  them  alone  can  the 
"  unseen  benefits,"  the  savings  made  to  the  peo- 
ple by  the  new  governmental  activities,  be  made 
to  help  pay  for  the  costs  of  those  activities. 

This  may  be  illustrated  by  a  single  example 
before  we  close  this  chapter.    The  regulation  of 


State  and  Local  Finance  65 

railroad  rates,  if  as  effective  as  it  is  claimed  to 
be,  adds  much  to  personal  efficiency,  little  to 
property  values.  It  cuts  down  railro,ad  property 
values  and  taxes  as  much  as  it  raises  private 
property  values  and  taxes.  The  property  tax 
will  never  reach  the  new  tax  paying  ability  result- 
ing from  this  activity.  The  income  tax  can 
reach  it. 

In  conclusion  we  may  restate  the  opinion  that 
the  greatest  growth  in  government  expenditures 
is  coming  in  the  field  of  state  finance. 


CHAPTER  VI 

MUNICIPAL    EXPENDITURES 

'  I  'HE  federal  and  the  commonwealth  govern- 
ments may  be  said  to  take  care  of  the  fields 
and  gardens  of  the  public  estate  and  the  cities 
may  be  said  to  do  the  housekeeping. 

There  is  a  troublesome  lack  of  uniformity 
among  the  larger  cities  of  the  United  States  as 
to  the  functions  which  they  perform  and  con- 
sequently as  to  the  lines  of  their  expenditures. 
Their  total  expenditures  (in  1912)  range  from 
$9.48  per  head  in  Johnstown,  Pa.,  purged  by  the 
flood,  to  $83.67  in  Omaha,  Neb.  But  it  should 
be  said  that  Omaha  spent  $60.43  P^^  head  for 
new  water  works,  so  the  better  comparison  is 
$9.48  against  $23.24.  This  lack  of  uniformity 
is  due  in  part  to  the  fundamental  differences  in 
the  framework  of  local  government.  In  some 
states  local  government  is  based  on  the  township 
system,  in  others  on  the  county  system,  and  in 
still  others  on  various  combinations  of  the  two. 
Another  cause  of  diversity  is  the  fact  that  each 
state  legislature  has  devised  its  own  way  of 
framing  the  underlying  law  for  city  governments. 
Many  diversities  are  temporary  only,  being  due 
to  new  outlays  for  permanent  improvements. 

While  this  diversity  is  sometimes  troublesome 

66 


Municipal  Expenditures  6y 

in  any  study  of  city  finances,  because  it  makes 
many  comparisons  which  we  would  Hke  to  insti- 
tute impossible,  yet  there  are  also  many  more 
important  similarities.  There  are  many  func- 
tions which  are  common  to  all  cities  and  which 
are  performed  in  much  the  same  manner  and  to 
somewhat  the  same  extent  in  all  large  cities. 
These  are  sufficiently  important  to  permit  us  to 
pass  briefly  over  the  differences,  a  full  discussion 
of  which  would  take  up  too  much  space. 

An  example  of  one  group  of  differences  is 
afforded  by  the  judicial  functions  performed  by 
the  city  as  such.  Some  cities  have  very  wide 
duties  of  this  sort,  while  for  others  these  powers 
vest  largely,  especially  as  to  the  higher  courts,  in 
the  county  within  which  the  city  is  located.  An- 
other set  of  differences  is  illustrated  by  the 
school  systems.  In  some  cases  the  schools  and 
certain  other  activities  are  wholly  under  the 
direct  control  of  the  city  government,  while  in 
many  other  cases  there  still  exist  within  the 
cities  separate  school  districts  and  other  districts 
more  or  less  independent  of  the  municipal  gov- 
ernments. Differences  of  the  first  type  do  not 
involve  great  differences  of  expense,  and  differ- 
ences of  the  second  sort  can  be  adjusted  by  com- 
bining the  costs  of  the  separate  districts  with 
those  of  the  cities. 

It  is  necessary  to  draw  the  line  somewhere 
between  cities  that  can  be  considered  full-fledged 
and  those  which  resemble  overgrown  villages  or 
towns.    The  line  must  be  more  or  less  arbitrarily 


68  Government  Finance 

drawn  and  has  been  drawn  by  the  Census  Bureau 
at  a  population  of  30,000,  or  formerly  at  25,000. 
We  shall  do  the  same  in  order  to  take  advantage 
of  the  census  figures.  There  were  195  such  cities 
reported  on  for  19 12.  For  146  of  the  195  we 
have  data  more  or  less  comparable  for  the  years 
from  1902  to  1912  inclusive. 

The  Census  Bureau,  whose  data  we  shall  fol- 
low in  the  main,  divides  the  money  paid  out  by 
cities  into  three  great  groups,  (i)  expenses,  (2) 
interest,  and  (3)  "outlays."  The  first  two  are 
self-explanatory,  the  last  covers  all  expenditures 
or  investments  for  "  permanent  properties  and 
public  improvements."  The  distinction  between 
an  "  outlay  "  and  an  "  expense  "  is  occasionally 
as  difficult  in  city  finances  as  for  any  individual. 
While  it  is  clear  that  a  new  street,  a  bridge, 
where  there  was  none  before,  or  a  fine  new  city 
hall  is  an  "outlay,"  yet  a  new  pavement  on  an 
old  street  is  an  expense  or  an  outlay  according 
to  whether  we  view  it  as  a  "  repair  "  or  an  "  im- 
provement." But  the  private  citizen  has  the 
same  trouble.  It  is  always  an  open  question 
whether  the  cost  of  a  new  automobile  is  an  ex- 
pense of  an  investment.  The  distinction  is  not 
a  hard  and  fast  one.  Too  often  the  "outlay" 
account  is  swelled  artificially  for  the  purpose  of 
making  an  unduly  favorable  showing  in  running 
expenses.  Generally  speaking,  every  expendi- 
ture of  money  raised  by  bonds  is  considered  an 
outlay,  but  some  current  revenues  also  go  into 
outlays  for  permanent  properties. 


Municipal  Expenditures  69 

We  shall  consider  first  only  expenses  or  cur- 
rent cost  payments. 

City  Expenses 

All  cities  provide  in  some  way  by  current 
funds  for  the  support  of  the  following  branches 
or  functions:  (i)  general  government;  (2) 
police  department;  (3)  fire  department;  (4)  pro- 
tection to  persons  and  property  other  than 
through  the  police  and  fire  departments;  (5) 
health  department;  (6)  sanitation,  or  promotion 
of  cleanliness;  (7)  streets  and  highways;  (8) 
charities,  hospitals,  and  corrections  ;  (9)  schools  ; 
(10)  libraries,  art  galleries,  and  museums;  (11) 
parks  and  recreation;  (12)  pensions  and  gratu- 
ities. Beyond  these  twelve  there  are  many  mis- 
cellaneous activities  not  common  to  many  cities 
but  of  great  and  growing  significance  where  they 
exist,  such  as  the  operation  of  public-service  en- 
terprises. Since  public-service  enterprises  present 
problems  in  finance  different  from  the  general 
run  of  departmental  activities,  they  will  be 
treated  here  separate  and  apart  from  all  others. 

General  Government 

Of  the  total  of  $508,500,000*  spent  in  1912 
for  running  expenses  by  the  195  cities  reported 

*  The  sum  is  about  $3,r>oo,ooo  greater  if  we  include 
money  spent  by  independent  school  (hstricts.  This 
$3,600,000  is  included  in  our  analysis  of  school  expenses 
but  is  omitted  here. 


yo  Government  Finance 

on  by  the  census  in  that  year,  $59,700,000  went 
for  the  general  government.  This  included  :  ( i ) 
the  council,  or  board  of  aldermen,  which  is  the 
legislative  branch;  (2)  the  executive  branch, 
whether  a  mayor,  a  commission  (partly  taking 
the  legislative  functions),  or  a  manager,  together 
with  the  financial  departments  of  tax  assessment 
and  collection,  auditing,  and  the  treasurer,  the 
city  law  department,  and  some  others;  (3)  the 
judicial  branch,  consisting  of  the  various  courts, 
the  coroner,  marshal,  or  sheriff;  (4)  the  cost  of 
elections;  (5)  the  care  and  rental  of  public  build- 
ings for  the  general  government. 

Of  all  these  the  judicial  branch  costs  the  most, 
or  nearly  $16,000,000,  and  if  we  add  to  this  the 
legal  department,  that  is,  the  city's  attorney,  the 
total  for  these  allied  objects  becomes  nearly 
$21,000,000.  The  financial  department  comes 
next  with  some  $14,200,000.  Then  follows  the 
executive  and  legislative  with  $10,500,000,  public 
buildings  $8,000,000,  elections  $6,000,000. 

These  items  bring  out  at  once  the  character  of 
the  city  in  its  two-fold  capacity:  (i)  as  a  gov- 
ernmental agency,  illustrated  by  the  importance 
of  the  judicial  department;  (2)  as  a  business 
undertaking,  as  evidenced  by  the  importance  of 
the  financial  and  administrative  departments. 
The  business  side,  as  we  shall  see,  is  advancing 
fastest.  Hence  arise  the  new  movements  in  re- 
gard to  the  form  of  city  government.  The  trend 
was  from  the  old  political  mayor  and  board  of 
aldermen  to  the  "  commission  "  form  of  city  gov- 


Municipal  Expenditures  yi 

ernment  and  now,  apparently,  to  the  "business 
manager  "  or  professional  mayor. 

While  it  is  not  within  our  present  purpose  to 
inquire  into  the  best  form  for  the  central  or 
general  government  of  a  city,  yet  we  must  note 
in  this  connection  what  different  kinds  of  work 
the  general  government  has  to  do.  First,  there 
are  the  delegated  political  powers  of  government 
pure  and  simple.  These  include.:  (i)  some  small 
matters  of  legislation  which,  as  a  rule,  are  not 
very  important;  (2)  some  very  extensive  powers 
of  keeping  order,  preventing  and  punishing 
crime,  and  conserving  public  welfare.  Second, 
there  is  a  very  large  amount  of  public  work  rang- 
ing from  the  construction  and  maintenance  of 
streets,  bridges,  and  sewers  to  highly  specialized 
public  utilities  such  as  street  railways,  light,  heat, 
and  power  plants.  Third,  there  is  the  school 
system. 

These  are  quite  distinct  lines  of  activities,  and 
each  requires  a  different  kind  of  talent  and  train- 
ing in  the  officers  in  charge.  The  first  is  mainly 
political,  the  second,  "  business,"  the  third,  "  pro- 
fessional." The  hardest  task  in  framing  a  city 
charter  consists  in  so  combining  these  elements 
as  to  afford  for  each  adequate  supervision  in  the 
general  government. 

Protection  to  Person  and  Property 

The  cost  of  this  part  of  the  municipalities' 
activities  is  second  only  to  the  cost  of  education. 


y2  Government  Finance 

The  total  spent  for  this  in  1912  was  $117,000,- 
000.  Of  this  the  poHce  departments  took  $60,- 
000,000,  the  fire  departments  $47,500,000,  includ- 
ing water  where  that  was  a  special  charge  against 
the  fire  department,  and  the  remaining  $9,500,- 
000  went  for  militia  and  armories,  the  register 
of  deeds  and  mortgages,  the  inspection  of  build- 
ings, plumbing,  weights  and  measures,  and  the 
like,  and  for  a  lot  of  miscellaneous  things  of 
which  the  pound,  the  morgue,  the  police  and  fire 
alarm  systems  may  serve  as  examples. 

There  are  two  sides  to  the  work  of  the  police 
department ;  on  one  side  it  is  repressive,  on  the 
other  regulative  and  constructive.  A  policeman 
arresting  a  pick-pocket  illustrates  one  side ;  an- 
other, directing  traffic  at  a  crowded  corner,  illus- 
trates the  other.  We  are  too  apt  to  think  of 
police  work  as  wholly  repressive  and  forget  that 
it  can  be,  and  is  becoming,  more  and  more  con- 
structive. 

In  a  very  instructive  table  in  his  book  Alore 
Money  for  the  Public  Schools,  ex-President 
Eliot  shows  that  where  the  most  money  is  spent 
on  schools  there,  generally  speaking,  the  least  is 
spent  for  the  police.  Money  spent  on  suppress- 
ing and  punishing  crime  is  a  sad  expense  at  best, 
and  if  it  can  be  saved  by  spending  more  in  other 
directions  there  is  a  gain  in  social  welfare  too 
great  to  be  measured  by  the  difference  in  money 
saved  or  spent.  The  tendency  of  the  American 
people  to  set  up  criminal  penalties  for  all  man- 
ner of  infractions  of  rules,  whether  such  infrac- 


Municipal  Expenditures  73 

tions  are  socially  dangerous  or  not,  and  to  mul- 
tiply the  regulations,  has  enormously  increased 
the  cost  of  the  repressive  side  of  the  police 
service.  It  has,  moreover,  brought  the  police 
service  into  grave  danger  of  corruption  by 
affording  the  officers  an  opportunity  to  overlook, 
for  a  bribe,  an  offense  which  public  opinion,  the 
law  to  the  contrary  notwithstanding,  does  not 
hold  to  be  wrong.  It  is  this  latter  tendency 
which  has  prevented  a  greater  reduction  in  the 
relative  cost  of  the  repressive  work  of  the  police. 
Yet  that  side  of  the  police  work  is  relatively  de- 
creasing. 

The  growth  of  the  constructive  work  of  the 
police  department  is  large  and  it  is  almost  en- 
tirely wholesome.  People  living  together  in  large 
masses  need  guidance.  An  army  cannot  be  so 
highly  trained  as  to  march  without  officers,  and 
while  the  crowd  leaves  the  theater  without  guid- 
ance, yet  when  entering  the  theater  ushers  greatly 
facilitate  finding  the  proper  seats.  Directing 
traffic,  preventing  accidents,  caring  for  the  in- 
jured, seeing  that  doors  are  properly  secured,  and 
through  the  police  courts  caring  for  children 
whether  physically  astray  or  morally  awry,  to- 
gether with  a  multitude  of  reformatory  activities 
such  as  probation,  truancy  work,  and  the  like,  all 
illustrate  what  is  meant  by  the  constructive  side 
of  the  police  work.  It  permeates  the  repressive 
work  as  well.  In  much  of  this  work  the  local 
courts  aid  the  police. 

The  annual  fire  waste  in  the  United  States  is 


74    .  Government  Finance 

a  subject  to  which  much  attention  has  been 
directed,  and  its  tremendous  size  has  been  pub- 
licly deplored.  The  figures  are  staggering.  The 
annual  property  loss  is  $230,000,000,  insurance 
against  that  costs  $410,000,000  annually,  and  the 
large  cities  alone  (those  of  over  30,000  inhab- 
itants), spend  $45,000,000  more  for  fire  depart- 
ments. If  we  make  allowance  for  fire  depart- 
ments in  other  cities,  towns,  and  villages  and  the 
incidental  expenses  in  other  departments  of  city 
governments,  such  as  special  provision  for  fire 
by  the  water  works,  the  total  annual  cost  to  the 
nation  for  fire  waste  and  prevention  runs  up  to 
over  $750,000,000.  A  large  part  of  this  is  due  to 
cheap  and  faulty  construction.  There  seem  to 
be  only  two  remedies  yet  discovered  to  prevent 
or  lessen  this  waste.  One  is  the  enforcement  of 
ordinances  requiring,  in  congested  districts,  fire- 
proof construction  only.  The  other  is  the  co- 
insurance plan  of  premium  rates  instituted  by 
the  insurance  companies,  which  makes  it  to  the 
advantage  of  the  owner  to  build  as  safely  as 
possible.  Fire  loss  is  a  preventable  loss.  But 
while  human  beings  are  careless,  incompetent, 
and  selfishly  negligent,  it  will  not  be  prevented 
wholly.  So  far  as  one  can  see,  an  efficient  fire 
department  is  a  necessary  arm  of  the  city  gov- 
ernment. 

The  conservation  of  health  is  costing  the  cities 
about  $10,000,000,  of  which  $4,500,000  goes  to 
the  general  support  of  the  health  office,  the  same 
amount  to  the  prevention  of  communicable  dis- 


Municipal  Expenditures  75 

eases,  and  another  million  especially  to  the  con- 
servation of  child  life. 

This  is  a  rapidly  growing  expense,  but  one  that 
is,  probably,  only  in  its  infancy  yet.  The  disease 
and  death  waste  is  far  more  serious  than  the  fire 
waste,  although  not  measurable  in  money.  It  is 
at  least  as  preventable  as  is  the  fire  waste.  Yet 
we  spend  four  and  a  half  times  as  much  of  public 
funds  on  the  fire  department  as  on  saving  lives 
and  preventing  sickness.  The  explanation  of  this 
is,  of  course,  to  be  found  in  the  fact  that  health 
is  a  matter  that  has  been  traditionally  left  to  pri- 
vate initiative  to  care  for  and  only  when 
epidemics  raged  or  threatened  has  it  been  con- 
sidered of  public  or  governmental  concern.  That 
constant  watchfulness  and  cooperative  medical 
supervision  through  municipal  agencies  can  do 
this  work  best  has  been  demonstrated. 

The  public  accounts  of  cities  carry  an  annual 
charge  of  $41,500,000  for  sanitation  or  the  pro- 
motion of  cleanliness.  Of  this  $7,000,000  goes 
for  the  current  expenses  of  the  upkeep  of  sewers 
and  the  disposition  of  sewage,  while  $33,000,000 
goes  for  collecting  and  disposing  of  garbage. 
The  other  $1,500,000  goes  for  public  laundries, 
wash-houses,  convenience  stations,  and  other 
sanitary  purposes.  The  aggregate  expense  for 
sewers  might  be  regarded  as  misleading,  because 
it  is  the  almost  universal  practice  to  write  off  the 
original  cost.  The  original  cost  of  sewer  con- 
struction is  not  known  nor  is  the  replacement 
value  ascertainable,  but  it  might  perhaps  be  held 


76  Government  Finance 

that  there  should  be  added  to  the  $7,000,000  a 
sum,  probably  very  large,  for  interest  on  the 
investment  in  the  sewer  system.  Some  of  the 
interest-bearing  debt  is  the  result  of  sewer  con- 
struction. New  sewers  called  for  $32,000,000 
in  1912. 

Highways 

The  care  and  maintenance  of  streets,  high- 
ways, and  bridges,  including  their  lighting,  occa- 
sion an  expense  of  $58,000,000,  of  which  $22,- 
000,000  is  for  lighting.  These  figures  again 
make  no  allowance  for  interest  on  the  investment 
which,  it  might  possibly  be  contended,  should  be 
included.  New  highways  cost  $102,500,000  in 
1912. 

In  this  connection  passing  mention  may  be 
made  of  the  fact  that  some  few  cities  have  mu- 
nicipal plants  of  various  sorts  for  their  own  serv- 
ices. These  cost  some  $2,000,000  to  run  each 
year.  This  is  usually  a  charge  against  the  dif- 
ferent departments  served. 

CJiarities 

Charities,  hospitals,  and  corrections  are  among 
the  oldest  city  functions,  yet  they  are  not  among 
the  most  costly.  Every  town  or  county  has  its 
poor  farm  and  the  cities  do  like  work.  The  total 
in  1912  was,  however,  only  $33,250,000.  This 
line  of  public  work  is  supplemented  largely  by 
private  charities  and  endowments  and  by  state 


Municipal  Expenditures  yy 

and  county  agencies,  so  that  the  public  work  of 
the  cities  is  very  httle  uniform  and  the  signifi- 
cance of  the  figures  is  difficult  to  ascertain. 

Education 

As  has  already  been  stated,  the  public  schools 
constitute  the  largest  single  object  of  city  ex- 
penditures, the  total  being  $147,000,000  by  the 
cities  as  such.  Adding  to  this  the  expenditures 
made  by  independent  school  districts  identified 
with  the  cities,  the  total  for  current  expenses  is 
$150,600,000.  This  is  merely  for  expense;  in- 
terest, and  outlays  swell  the  total  to  $220,000,000. 

There  are  three  ways  of  financing  the  city 
schools  :  ( I )  the  entire  support  may  be  a  burden 
on  the  city;  (2)  the  state  may  collect  the  entire 
fund  and  apportion  it  to  the  cities,  and  other 
districts;  (3)  the  state  (and  sometimes  the 
county),  may  raise  a  general  maintenance  fund 
and  apportion  that,  while  the  cities  and  districts 
supplement  that  with  additional  funds  for  main- 
tenance and  for  construction  of  buildings. 

The  third,  in  a  great  variety  of  forms,  is  the 
most  common  method.  The  reason  for  a  central 
state  fund  apportioned  to  the  cities  and  districts 
is  the  desire  to  ensure  a  certain  minimum  uni- 
formity. It  also  places  a  part  at  least  of  the 
burden  of  the  support  of  the  schools  in  poor 
cities  and  districts  on  the  shoulders  of  the  richer 
cities  and  districts.  Of  the  $150,600,000  spent, 
$22,000,000    came    from    the    state    funds    and 


78  Government  Finance 

$4,000,000  from  county  funds.  Nearly  all  the 
rest  was  raised  by  the  cities  themselves  or  within 
the  cities  through  school  districts.  But  the  dif- 
ferences in  practice  are  wide.  New  York  City 
spends  $34,700,000  for  schools  of  which  hardly 
$2,000,000  comes  from  the  state,  while  in 
Newark,  N.  J.,  the  state  supplies  about  half. 

Of  the  $150,600,000  which  the  195  cities  spent 
for  the  running  expenses  of  the  public  schools 
of  all  grades,  $95,400,000  went  for  the  salaries 
of  teachers  other  than  principals.  To  this  should 
be  added  $13,800,000  for  supervision  of  instruc- 
tion by  principals  and  other  officers.  Thus  $109,- 
200,000  or  seventy-three  percent  of  the  total 
goes  to  salaries  for  instruction.  Supplies  used 
directly  in  the  work  of  instruction  —  such  as 
books,  maps,  stationery,  and  the  like  —  cost 
$9,000,000  more.  This  makes  the  full  cost  of 
instruction  alone  $118,200,000,  which  is  eighty- 
four  per  cent  of  the  whole.  General  administra- 
tion, janitors,  fuel,  repairs,  and  other  miscel- 
laneous expenses  make  up  the  remainder.  When 
we  consider  the  size  and  number  of  the  school 
buildings  and  the  heavy  wear  and  tear  to  which 
they  are  subject  it  seems  that  sixteen  per  cent 
is  a  very  small  operative  charge,  and  a  system 
which  actually  puts  $84  out  of  every  $100  of  cur- 
rent expenses  into  the  main  object  can  not  be 
regarded  as  badly  managed.  When  we  add  to 
the  running  expenses  the  interest  charges  of 
some  $12,000,000,  and  the  outlays  of  about 
$42,000,000   we   may   not    be   as    well   pleased. 


Municipal  Expenditures  79 

School  trustees  serve  for  the  most  part  without 
compensation.  Thus  a  real  cost  is  incurred 
which  does  not  show  in  the  accounts. 

Of  the  new  features  among  these  costs  for 
schools  may  be  mentioned  "  free  textbooks " 
$1,364,000,  and  "teachers'  pensions"  $1,720,- 
000.  Free  textbooks  have  long  been  furnished 
to  pupils  too  poor  to  pay  for  them,  but  the  inno- 
vation is  in  furnishing  all  textbooks  free.  This 
is  by  no  means  universal.  In  some  states  this 
is  a  state  and  not  a  city  charge.  Teachers'  pen- 
sions are  not  paid  in  all  cities.  In  1912,  out  of 
19s  cities  fifty-three  paid  teachers'  pensions,  and 
five  more  had  funds  for  that  purpose.  Less  than 
half  of  this  expense  comes  from  funds  furnished 
by  the  taxpayers.  The  greater  part  is  from 
assessments  levied  on  the  teachers,  which  are 
handled  somewhat  after  the  analogy  of  insurance 
funds. 

We  reach  the  end  of  the  expenses  of  the  cities 
with  parks  and  other  recreations  which  cost  $18,- 
800,000  and  some  miscellaneous  items  which 
amount  to  $14,600,000, 

The  Growth  of  Expenses 

The  growth  of  city  expenditures  presents  many 
interesting  phases.  The  aggregate  expenses 
merely,  exclusive  of  interest  and  borrowed 
money  spent,  and  exclusive  of  the  expenses  of 
public  service  enterprises,  increased  for  the  146 
cities,  for  which  continuous  statistics  are  avail- 


8o  Government  Finance 

able,  from  $272,400,000  in  1902  to  $486,900,000 
in  1912.  But,  of  course,  the  population  also 
increased.  In  proportion  to  population  the  in- 
crease is  from  $13.02  per  capita  in  1902  to 
$17.34  per  capita.  This  is  an  increase  in  per 
capita  cost  of  thirty-three  per  cent  in  an  interval 
of  ten  years. 

It  might  be  claimed  that  part  of  this  increase 
is  fictitious  because  of  the  shrinking  in  the  pur- 
chasing power  of  money.  Without  going  into 
the  pros  and  cons  of  this  claim,  we  may  for 
argument's  sake  admit  it.  Professor  Fisher's 
study  of  the  purchasing  power  of  money  shows 
in  a  general  way  that  it  took  about  $1.23  in  1912 
to  buy  as  much  as  $1.00  would  have  bought  in 
1902.  But  for  every  dollar  spent  in  1902,  the 
cities  were  spending  $1.33  in  1912.  Even  if  the 
fall  in  money  accounts  for  twenty-three  cents  of 
the  increase  in  each  dollar  per  capita,  there  is  at 
least  ten  cents  more  in  each  such  dollar  to  be 
accounted  for.  This  increase  amounts  to  $1.30 
annually  for  each  inhabitant. 

But  in  fact  there  is  much  more  than  that  to  be 
accounted  for.  In  the  first  place  cities  have  cut 
down  the  loss  of  "graft,"  of  which  there  is  far 
less  than  there  used  to  be.  It  is  obvious  also 
that  there  are  many  things  which  cities  do  which 
can  be  done  more  cheaply  on  a  large  scale  than 
on  a  small  scale.  We  need  not  specify  these,  but 
we  may  point  out  that  street  cleaning,  street 
lighting,  and  dozens  of  other  things  can  be  done 
more  cheaply  if  done  in  the  same  style,  or  with 


Municipal  Expenditures  8i 

no  better  methods,  in  a  city  of  200,000  inhab- 
itants than  in  one  of  100,000  inhabitants.  This 
very  illustration  reveals  the  reason  for  the  in- 
crease in  cost  which  we  find  where  a  decrease 
was  to  be  expected.  Instead  of  the  dim  lights 
of  ten  years  ago,  cities  are  brilliant  with  ten  or 
twenty  times  as  many  candle  power  per  block 
along  their  "  white  ways  "  as  they  had  along  the 
same  streets  before.  Practically  every  branch 
of  city  activity  is  doing  more  than  it  did  ten 
years  ago.  This  increase  in  civic  work  has  eaten 
up  the  saving  which  came  from  doing  things  on 
a  large  scale  and  also  the  saving  from  the  reduc- 
tion in  "graft,"  and  then  about  $1.30  per  capita 
more,  even  if  we  allow  to  the  utmost  for  the 
shrinkage  in  the  purchasing  power  of  money. 

The  following  table  shows  where  the  increases 
have  been  made. 

Per  Capita  Departmental  Expenses 

Increase    Per  Cent  of  Aggregate 
Expenses  Per  Cent      In  1912  In  1902 

Total    33  100  100 

General  Government   43  11.8  10.9 

Police    II  1 1.9  13.4 

Fire    24  9.2  9.5 

Other   Protection    330  1.9  1.3 

Health    66  2.1  1.6 

Sanitation    61  8.2  6.8 

Highways    17  11.4  12.9 

Charities,  etc 35  6.7  6.4 

Schools     39  28.5  27.5 

Libraries    37  1.3  1.2 

Recreation    (parks)    10  3.8  4.5 

Miscellaneous    50  3.2  3.8 


82  Government  Finance 

Let  us  inquire  into  the  causes  of  these  in- 
creases, comparing  each  one  with  the  average 
or  thirty-three  per  cent. 

The  main  cause  why  central  or  general  govern- 
ment expense  increased  faster  than  the  average 
is  probably  to  be  found  in  the  increase  in  regula- 
tive work  and,  also,  in  public  service  enterprises, 
the  expenses  of  which  are  not  included  here  but 
the  supervision  of  which  causes  more  work  for 
the  central  offices. 

That  the  cost  of  police  did  not  increase  as 
fast  as  the  average,  only  eleven  per  cent  against 
thirty-three  per  cent,  is  explained  by  the  fact 
that  here  at  least  a  part  of  the  saving  arising 
from  doing  things  on  a  large  scale  has  accrued 
to  the  tax  payers.  The  fact  that  the  police  take 
only  eleven  and  nine-tenths  per  cent  of  all  the 
money  spent  for  running  expenses  now  as  against 
thirteen  and  four-tenths  ten  years  ago  is  gratify- 
ing. The  same  thing  is  true  of  the  fire  depart- 
ment but  not  to  the  same  extent  as  the  police. 

"  Other  protection "  stands  out  in  startling 
fashion.  But  these  things  are  new  and  more- 
over were  cared  for,  in  some  small  degree,  under 
other  departments  before,  so  the  showing  is 
somewhat  artificial.  As  the  cost  is  less  than  two 
per  cent  of  the  whole,  we  may  pass  this  item. 

Health  protection  is  growing  twice  as  fast  as 
the  average,  and  sanitation  is  growing  almost  as 
fast  as  health  protection.  All  of  this,  we  must 
agree,  is  as  it  should  be.  It  means  money  spent 
for  the  conservation  of  life  and  strength. 


Municipal  Expenditures  83 

Charities  keep  pace  with  the  average  growth. 

Schools  and  libraries  are  growing  faster  than 
the  average  city  activities.  This  is  all  the  more 
significant  as  it  falls  on  nearly  thirty  per  cent 
of  the  whole  expenses.  But  as  we  have  seen,  the 
states'  contributions  are  not  keeping  pace  so  well. 

The  failure  of  recreation  expenses  to  increase 
as  fast  as  the  average  is  easily  explained.  Parks 
are  rarely  utilized  to  their  limit  of  capacity,  and 
it  costs  but  little  more  in  the  aggregate  to  care  for 
a  park  visited  by  20,000  people  than  one  used  by 
only  10,000. 

The  miscellaneous  are  small  items,  mostly  new. 
Among  them  are  pensions. 

The  Meaning  of  the  Averages 

The  figures  we  have  been  considering  are  aver- 
ages with  many  limitations.  It  is  hardly  safe  to 
assume  that  they  are  normal  or  typical.  The 
increase  has  not  been  at  all  steady  throughout 
the  period.  The  increase  was  most  rapid  in  1907, 
the  departmental  expenses  in  that  year  being 
eleven  and  eight-tenths  per  cent  more  than  in 
1906.  Between  1908  and  1909  the  increase  was 
least,  being  only  two  and  two-tenths  per  cent.  In 
other  words,  the  crisis  of  1907  was  preceded  by 
a  rapid  growth  of  public  expenditures  and  fol- 
lowed by  a  tendency  to  contract. 

Again  while  the  average  is  $17.34  per  capita 
in  1912,  yet  there  are  some  cities  which  spend 
much  more.  Boston,  for  example,  spends  $28.06 ; 
Washington,  D.  C,  $25.43;  New  York,  $24.58; 


84  Government  Finance 

Denver,  $20.13;  Atlantic  City,  $22.76;  Mount 
Vernon,  $27.53.  Many  cities  spend  much  less : 
Charlotte,  N.  C,  only  $6.44 ;  Allentown,  Pa., 
$6.47 ;  Birmingham,  Ala.,  $8.64 ;  New  Orleans, 
$12.79;  Baltimore,  $15.14. 

The  average  is  pulled  up  by  the  relatively  high 
per  capita  expense  of  the  great  cities.  This  is 
shown  by  the  following  table: 


No.  of 

Cities  Having  a 

Per  Capita  Expenses 

Cities 

Population  of 

for  Departments 

9 

500,000  and  over 

$21.24 

9 

300,000  to  500,000 

19.99 

95 

100,000  to  300,000 

14.22 

IS 

30,000  to  100,000 

12.06 

67 

50,000  to     50,000 

11.69 

195  $17-34 

Even  in  the  first  group  there  are  six  cities 
which  spend  less  than  $18.50  per  capita,  but  the 
general  average  is  pulled  up  by  New  York,  which 
spends  $124,500,000  out  of  the  total  of  $267,800,- 
000  for  the  group. 

In  the  second  group  the  range  is  less  and  the 
average  of  $20  per  capita  in  this  class  of  cities 
may  be  regarded  as  typical. 

The  third  contains  the  largest  number  of  cities. 
In  this  group  sixty-eight  out  of  the  ninety-five 
cities  spend  less  than  the  average.  Twenty-five 
spend  between  $12  and  $14  per  capita,  and  all 
things  considered  $13  per  capita  is  more  rep- 
resentative of  this  group  than  $14.22. 

In  the  fourth  group  there  is  much  less  varia- 
tion and  the  average  is  fairly  typical. 


Municipal  Expenditures  85 

In  the  last  group  again  there  are  twenty-one 
out  of  sixty-seven  cities  in  the  group  which  spend 
between  $10  and  $12  per  capita;  hence  the  aver- 
age although  pulled  up  a  little  by  the  heavy  ex- 
penditures of  San  Diego,  Cal.,  Newton,  Mass., 
and  Mount  Vernon,  N.  Y.,  is  fairly  represen- 
tative. 

For  the  United  States  at  large,  however,  the 
average  of  $17.34  is  in  no  way  typical.  Because 
half  the  cities  spend  less  than  $12.10  and  three- 
fourths  less  than  $15  per  capita.  There  is  no 
pronounced  grouping  at  any  point,  but  there  are 
124  cities  which  spend  as  much  as  $9  per  capita 
and  less  than  $15,  and  the  mid-point  in  that  large 
group  is  $12  per  capita.  Hence  $13.50  is  prob- 
ably a  fair  average  to  use. 

The  per  capita  costs  for  all  purposes  is,  of 
course,  much  higher  than  any  of  these  figures,  as 
the  table  on  page  86  shows ;  but  for  comparison 
between  cities  departmental  costs  are  the  best. 

Public  Service  Enterprises 

Much  of  the  work  done  by  cities,  which  we 
have  considered  above,  is  cooperative  or  semi- 
socialistic.  That  is  to  say,  the  cities  provide  for 
the  individual  citizens  things  which  they  might  — 
and  for  a  long  time  did  —  provide  for  them- 
selves, or  which  might  be  provided  by  private 
enterprise.  The  big  motor-driven  street  sweeper 
has  taken  the  place  of  the  primitive  rule  "  let 
every  man  sweep  in  front  of  his  own  door," 


86 


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;^^ 

Municipal  Expenditures  87 

This  is  notably  true  of  the  schools,  of  all  pro- 
tection of  health,  of  recreation,  of  a  part  of  the 
constructive  work  of  the  police.  But  some  of 
these  things,  such  as  schools,  have  been  govern- 
mental so  long  that  we  have  come  to  think  of 
them  as  necessarily  so.  Others  are,  as  it  were, 
direct  adjuncts  to,  or  outgrowths  of,  pure  gov- 
ernmental functions,  or  require  the  force  of  gov- 
ernment to  make  them  go,  so  that  nobody  ques- 
tions them  as  invasions  of  the  sphere  of  private 
enterprise. 

But  there  are  some  thing  which  cities  are  be- 
ginning to  do  which  we  all  class  as  "  public 
service  enterprises,"  or  "  industrial  undertak- 
ings." By  that  classification  we  imply  that  they 
are  as  yet  on  the  borderline  between  public  and 
private  enterprise.  Thus  many  cities  have  public 
water  works,  while  others  depend  on  private 
companies  to  supply  the  people  with  water. 

In  like  manner  some  cities  furnish  for  sale  to 
private  citizens  electric  power  and  light.  Others 
furnish  gas.  Recently  several  important  cities 
have  started  municipal  street  railways.  This  is 
since  19 12,  and  hence  not  yet  reported  by  the 
Census  Bureau.  Other  public  service  enterprises 
listed  by  the  Census  Bureau  in  1912  were:  mar- 
kets and  public  scales,  docks,  cemeteries,  crema- 
tories, public  halls,  subways  for  pipes  and  wires, 
ferries,  toll  bridges,  lunchrooms,  city  farms,  the 
"city-record,"  a  municipal  newspaper,  a  "belt 
railroad,"  harbor  pilotage,  towing  and  dredging, 
"  river  and  ditch  commission,"  municipal  stores, 


88  Government  Finance 

a  liquor  agency,  a  municipal  organ,  a  powder 
magazine,  a  canal,  levee  improvement,  and  an 
artesian  well. 

To  one  familiar  with  municipal  matters  this 
list  of  itself  shows,  as  the  Census  Bureau  very 
justly  points  out,  that  "the  statistics  of  munici- 
pally operated  public  service  enterprises  are  for 
most  cities  defective  in  consequence  of  the  fact 
that  their  accounts  are  not  completely  segre- 
gated." The  confusion  in  the  accounts,  more- 
over, further  confirms  the  principle  elsewhere  set 
forth  that  when  a  government  takes  over  any 
activity  from  the  field  of  private  enterprise  it 
very  soon  comes  to  treat  that  "  activity "  as  a 
"  public "  one  in  the  complete  sense,  although 
at  first  it  may  have  been  only  quasi-public. 

It  would  take  us  away  from  our  immediate 
purposes  to  discuss  at  great  length  the  relative 
merits  of  public  and  of  private  ownership  and 
operation  of  public  utilities,  such  as  waterworks, 
street  railways,  gas  and  electric  supplies,  and  the 
mass  of  enterprises  listed  above.  But  a  brief 
statement  of  the  principles  involved  may  be 
given. 

Waterworks  are  very  commonly  municipal  en- 
terprises. In  some  cases  they  became  so  because 
of  difficulties  connected  with  granting  to  a  pri- 
vate company  that  guarantee  of  a  steady  income 
which  was  necessary  to  call  forth  enough  capital 
to  provide  an  adequate  supply.  In  other  cases 
solicitude  for  the  purity  of  the  water  and  the 
broad  exercise  of  the  government's  powers  neces- 


Municipal  Expenditures  89 

sary  to  insure  that  purity  seemed  to  be  the  deter- 
mining factor.  In  still  other  cases,  and  probably 
they  are  the  most  numerous,  the  profits  of  water 
works  did  not  promise  to  be  large  enough  to 
tempt  private  capital  into  the  field.  A  resort  to 
general  taxation  was  in  such  cases  necessary. 
The  large  public  use  of  water  for  street  sprink- 
ling, flushing  of  sewers,  fire  protection,  and  sani- 
tation generally,  also,  suggested  public  water 
works.  It  is,  also,  almost  as  important  to  me 
that  my  neighbor  have  and  use  an  adequate  sup- 
ply of  water  as  it  is  for  me  to  have  enough  for 
myself. 

Another  influence  tending  to  decide  the  public 
to  municipalize  the  waterworks  is  the  fact  that 
the  charges,  or  water  rates,  have  of  necessity 
to  be  fixed  by  methods  akin  to  taxation.  The 
"  overhead  "  charges  are  the  main  costs,  and  a 
definite  total  income  must  be  assured.  The  serv- 
ice is  so  necessary,  so  indispensable,  that  the  risk 
of  interruption  from  insufficient  patronage  is  one 
that  cannot  be  .incurred.  So  all  charges  must  be 
met  in  some  way  or  other.  Unless  the  supply  is 
very  limited,  so  that  meters  are  necessary  to  pre- 
vent waste,  the  rates  are  graded  according  to  the 
facilities  afforded  by  the  system  rather  than  by 
the  use  made  of  the  water. 

Public  water  works  have  generally  been  a  suc- 
cess. There  have  been  "graft,"  waste,  extrava- 
gance, and  other  troubles  in  too  many  cases.  But 
on  the  whole,  the  results  of  public  management 
have  been  satisfactory. 


90  Government  Finance 

The  reasons  for  this  are :  ( i )  the  installment 
of  the  works  is  so  obviously  an  engineering  prob- 
lem that  men  of  training  have  been  called  in ;  (2) 
the  investment  and  work  is  conspicuously  large 
and  catches  the  public  attention,  so  that  it  is  open 
and  "public"  from  the  start;  (3)  once  installed 
the  service  is  always  under  the  eye  of  and  of 
live  interest  to  every  voter;  (4)  the  service  is 
very  simple,  and  requires  few  operators ;  wages 
and  salaries  being  a  relatively  small  part  of  the 
total  expenses  the  usual  weaknesses  of  political 
appointment  of  employees  are  reduced  to  a  mini- 
mum;  (5)  a  very  considerable  part  of  the  ex- 
pense is  inevitably  shifted  to  the  tax  field  and 
not  unjustly  so,  hence  nobody  objects;  (6)  the 
service  is  permanent  and  not  much  subject  to 
change.  Nothing  much  better  than  the  Roman 
aqueducts  has  yet  been  invented.  Also,  no  sub- 
stitutes for  water  has  been  found  which,  fatuous 
as  it  may  sound,  is  an  important  consideration. 

Cities  go  into  other  public  enterprises,  such  as 
street  railways  and  gas  and  electric  service,  from 
a  variety  of  motives,  all  very  different  from  those 
leading  them  to  install  water  works.  Private 
capital  has,  until  this  year,  been  eager  to  enter 
here.  The  service  has  been  adequate,  or  gener- 
ally can  be  made  so  by  regulation.  The  service 
has  never  been  a  necessity  to  the  same  extent  as 
water  is,  for  there  are  many  substitutes.  The 
main  arguments  for  such  enterprises  have  been : 
(i)  that  the  profits  of  private  enterprise  in  these 
fields  might  be  saved  to  the  public;  (2)  that  pub- 


Municipal  Expenditures  91 

lie  ownership  will  give  services  which  may  not  be 
"profitable"  but  may  be  publicly  desirable. 

We  cannot  at  this  writing  foresee  what  the 
future  of  these  two  kinds  of  service  is  to  be.  It 
seems  apparent  that  street  railways  operating  on 
surface  roads  will  suffer  severely  from  the  wider 
use  of  vehicles  that  require  no  tracks.  But 
whether  tubes,  tunnels,  and  elevated  ways,  en- 
larging the  street  surfaces,  should  be  built  by 
private  enterprise  or  from  public  funds  will  be 
the  problem  that  will  take  the  place  of  the  street 
railway  problem.  How  permanent  the  gas  and 
electric  systems  of  today  may  be  no  one  can  tell. 

Experience  so  far  is  too  limited  for  definite 
conclusions  as  to  the  relative  merits  of  public 
and  of  private  ownership  and  operation  of  street 
cars  and  gas  and  electric  works.  But  thus  far 
we  may  note  that  gas  and  electric  service  by 
cities  has  only  occasionally  succeeded.  Gener- 
ally, the  municipal  plant  soon  becomes  antiquated 
and  is  abandonded.  Street  railways  as  public 
enterprises  generally  start  with  some  very  profit- 
able trunk  line,  but  very  soon  the  demand  for 
extensions  into  places  where  private  enterprise 
would  not  build  lines,  swamps  the  city  system 
and  the  taxpayers  foot  the  bill.  But,  inasmuch 
as  the  life  of  track  vehicles  for  city  passenger 
traffic  on  surface  streets  may  be  limited,  the 
whole  question  as  to  municipal  street  railways 
may  soon  be  a  matter  of  historical  interest  only. 
Right  here  the  tendency  of  private  owners  to 
unload   moribund   service   plants   on   the   public 


92  Government  Finance 

comes  to  the  aid  of  the  socialist.  Just  when 
the  wireless  telegraph's  sparks  cross  the  ocean 
and  the  telephone  spans  the  continent  a  Post- 
master General  advocates  the  purchase  by  the 
Federal  Government  of  the  decaying  poles  and 
corroded  wires  of  the  old  telegraph  company. 
Just  when  the  city  street-railway  car  is  to  be 
displaced  by  the  railless  car  the  cities  plunge  into 
debt  to  build  municipal  rail  lines  where  lapsing 
franchises  have  allowed  private  capital  to  escape. 

In  the  face  of  these  bewildering  changes,  one 
thing  alone  is  clear.  That  is,  that  there  should 
be  not  only  a  recognized  paramount  public  neces- 
sity for  any  extension  of  public  enterprise  but 
also  some  assurance  of  permanency.  Private  en- 
terprise may  take  a  "  sporting  chance,"  but  gov- 
ernment cannot.  A  city  government  has  too 
many  vital  obligations  which  it  does  not  ade- 
quately meet  to  dare  to  risk  its  finances  in  fleet- 
ing industries.  With  its  schools  needing  more 
money  it  is  folly  for  a  city  to  borrow  millions 
to  speculate  on  the  chances  of  life  and  profits  of 
a  surface  street  railway  system. 

Public  service  enterprises  owned  by  cities 
earned  in  191 2  $85,000,000  gross.  The  costs 
credited  to  them  were  $39,000,000,  showing  an 
apparent  profit  of  $46,000,000.  Water  supply 
systems  included  above  brought  in  $70,000,000 
and  were  charged  with  costs  of  $30,000,000  and 
hence  yielded  most  of  the  apparent  profit.  Docks, 
wharves,  and  landings  showed  an  apparent  profit 
of  $3,500,000.     Against  these  enterprises  stands 


Municipal  Expenditures  93 

a  debt  of  $840,000,000.  Against  water  works 
alone  stands  $475,000,000  of  debt,  against  docks 
$348,000,000.  If  the  census  estimates  of  the 
value  of  the  "land,  buildings,  and  equipment  of 
public  service  enterprises"  of  $1,215,000,000  be 
accepted,  the  apparent  profit  above  is  three  and 
eight-tenths  per  cent  on  the  investment.  Water 
works  are  valued  at  $910,000,000  and  return 
four  and  four-tenths  per  cent  on  that  value.  But 
as  elsewhere  explained,  the  book  costs  of  public 
service  enterprises  does  not  include  all  real  costs, 
so  this  is  a  merely  speculative  line  of  inquiry. 

Municipal  Outlays 

New  buildings,  streets,  and  other  permanent 
properties  acquired  or  developed  are  the  occasion 
for  "  outlays  "  as  distinct  from  running  expenses. 
The  amount  of  such  outlays  in  191 2  was  $303,- 
500,000.  The  net  increase  in  debt  for  the  year 
less  sinking  funds  was  $135,000,000.  So  all  of 
these  "  outlays  "  could  not  have  been  made  dis- 
tinctly from  borrowed  money.  At  least  making 
them  did  not  occasion  an  increase  in  debt  equal 
to  the  outlays.  On  the  other  hand,  cities  bor- 
rowed $635,000,000,  of  which  $316,500,000  was 
funded  on  floating  debt  other  than  special  assess- 
ment bonds,  revenue  bonds,  notes  and  warrants. 
They  redeemed  $461,000,000  of  obligations  of 
which  $143,000,000  was  of  the  same  character  as 
the  $316,500,000. 

In   the   intricacies   of    these   operations    it    is 


94  Government  Finance 

hard  to  see  just  what  took  place.  The  census 
office  is  probably  right  when  it  hails  these  facts 
as  evidence  of  a  tendency  to  make  permanent 
improvements  out  of  current  revenues  instead 
of  always  borrowing  for  them.  But  on  the 
other  hand  $316,500,000  of  new  bonds  were 
placed  and  $303,500,000  of  new  improvements 
made,  and,  furthermore,  taxes  did  not  come 
down. 

The  largest  outlays  were  for  highways,  $102,- 
500,000;  schools  and  libraries  come  next  with 
$42,000,000.  Sewers  and  sanitation  called  for 
$32,000,000. 

Grand  Total  of  All  Government  Costs 

The  grand  total  of  all  the  moneys  paid  from 
the  treasuries  of  the  195  cities  was  $960,000,000 
(nearly).  Of  this,  $656,000,000  was  for  expenses 
and  interest  as  follows :  For  general  expenses 
$509,000,000,  for  expenses  of  public  service  en- 
terprises $39,000,000,  for  interest  $108,000,000, 
and  lastly  there  were  $303,500,000  for  outlays. 

The  totals  for  the  146  cities  for  which  con- 
tinuous data  are  available  grew  from  $463,000,000 
in  1902,  to  $907,000,000  in  19 12,  or  they  nearly 
doubled  in  ten  years.  The  interest  charge  more 
than  doubled,  and  outlays  in  1912  were  133  per 
cent  greater  than  in  1902.  Meanwhile  the  popula- 
tion increased  from  20,000,000  to  27,000,000,  or 
only  thirty-four  per  cent. 

The  size  of  these  expenditures  can  be  judged 
by  comparison  with  the   Federal  Government's 


Municipal  Expenditures  95 

expenditures.  The  146  cities  spent  in  1912  an 
average  of  $33.08  per  capita,  while  the  Federal 
Government  spent  $10.10  per  capita.  The  Fed- 
eral Government  spent  in  all  $965,000,000,  the 
146  cities  $907,000,000,  the  195  cities  $960,- 
000,000.  Federal  expenditures  grew  seventeen 
per  cent  in  ten  years  while  city  expenditures  grew 
forty-five  per  cent. 

The  census  average  of  $33.08  per  capita  is, 
however,  not  a  very  good  average.  To  be  sure 
it  is  the  correct  arithmetical  average.  But  as 
pointed  out  in  connection  with  the  average  for 
departmental  expenses,  the  average  is  brought  up 
by  the  large  cities.  New  York's  $48.02,  Boston's 
$45.78,  Los  Angeles'  $61.42  (due  to  the  outlays 
for  the  Owens'  River  water  works),  and  other 
similar  cases  distort  it.  Half  the  cities  expend 
for  all  purposes  less  than  $22  per  capita. 

The  ad  valorem  taxes  levied  in  cities  in  1912 
amounted  to  $18.34  per  capita,  in  1902  to  $13.20. 
The  average  tax  rates  —  but  these  have  little 
actual  meaning  in  view  of  the  uncertainty  as  to 
the  ratio  of  assessed  to  true  value  —  rose  from 
$1.63  to  $1.75  per  $100  of  assessed  value.  It  is 
probably  true  that  the  ratio  of  assessed  to  true 
value  was  higher  in  1912  than  in  1902.  It  is 
probably  safe  to  assert  that  the  burden  of  city 
taxes  on  city  property  is  a  third  heavier  than  it 
was  in  1902. 

How  long  the  present  taxpayers  can  stand  the 
steady  and  persistent  increase  in  tax  burden  is 
an  interesting  subject  of  speculation. 


CHAPTER  VII 

EFFICIENCY    IN    GOVERNMENT    BUSINESS 

'  I  'O  discuss  the  efficiency  of  government  busi- 
ness thoroughly  would  lead  us  far  afield 
from  mere  finance.  The  questions  as  to  the  best 
form  and  framework  of  government  are  for 
students  of  government  to  settle.  The  waste  of 
government  money  is  everywhere  great.  Bu- 
reaus of  municipal  research,  civic  associations  of 
many  kinds,  tax  associations,  and  the  like  are 
constantly  revealing  waste  and  inefficiency  in 
government  business.  Many  of  these  organiza- 
tions are  private  societies  maintained  at  private 
cost  or  by  subscriptions  from  many  persons. 
Some  are  subsidized  by  heavy  taxpayers.  A  pri- 
vate association  to  watch  and  check  a  govern- 
ment which  is  conducted  by  the  elected  represen- 
tatives of  the  people  certainly  seems  to  be  an 
anomaly.  A  few  such  agencies  are  regular  bu- 
reaus of  government.  Generally  the  efforts  at 
reform  and  economy  are  spasmodic  and  soon  die 
out.  When  made  by  public  officials  they  seldom 
survive  a  change  of  party.  All  of  which  is  very 
unfortunate. 

Senator  Aldrich  is  credited  with  saying  that  a 
"business"  administration  of  the  Federal  Gov- 
ernment would  save  $300,000,000  a  year.     In  a 

96 


Efficiency  in  Government  Business     97 

recent  popular  article  President  Taft  holds  this 
claim  of  Senator  Aldrich  to  be  excessive,  but 
claims  that  it  would  not  be  hard  to  save 
$100,000,000. 

In  recent  messages  President  Wilson  has 
rather  belittled  the  importance  of  saving,  claim- 
ing: that  "the  people  of  the  United  States  do 
not  wish  to  curtail  the  activities  of  this  Govern- 
ment ;  they  wish,  rather,  to  enlarge  them ;  and 
with  every  enlargement,  with  the  mere  growth, 
indeed  of  the  country  itself,  there  must  come,  of 
course,  the  inevitable  increase  in  expense."  All 
of  this  is  true  enough,  but  a  saving  of  money 
which  would  facilitate  making  these  expansions 
without  an  increase  in  tax  burden  would  be  even 
more  acceptable.  A  comparison  of  President 
Garfield's  view,  cited  in  Chapter  iv,  with  the 
above  view  will  give  much  food  for  thought. 

The  Budget 

To  facilitate  a  better  control  of  expenses  by 
Congress,  state  legislatures,  and  the  city  councils, 
a  "  budget  system  "  is  widely  urged.  The  term 
budget  is  used  in  this  connection  in  a  new  and 
restricted  sense.  No  true  budget  system  can  be 
devised  for  this  country  without  a  sweeping 
change  in  our  form  and  theory  of  government. 
Separation  of  the  executive  from  the  legislative 
department  is  universal,  from  the  Federal  Gov- 
ernment down.  In  England,  as  in  many  other 
countries,  the  executive  —  the  ministry  —  is  re- 
sponsible to  Parliament,  and  the  ministers  are 


98  Government  Finance 

spokesmen  of  the  majority  in  Parliament.  Con- 
sequently the  recommendations  as  to  what  shall 
be  spent  and  what  taxes  shall  be  levied  are  the 
recommendations  of  the  majority's  representa- 
tives to  the  members  of  their  own  party.  In 
some  years  the  majority  in  Congress  is  in  close 
sympathy  with  the  President  and  his  cabinet,  or 
the  majority  in  the  legislature  with  the  governor, 
or  again  the  city  fathers  may  be  in  full  accord 
with  the  mayor ;  yet  the  independence  of  the  two 
branches  is  so  jealously  guarded  that  the  unity 
necessary  for  a  true  budget  does  not  develop. 
When,  as  quite  often  happens,  the  executive  is 
of  one  party  and  the  legislative  bodies  of  an- 
other, no  such  unity  is  possible.  In  such  cases 
no  "  budget "  of  any  kind  would  be  of  any  use. 
But  merely  because  a  true  budget  system 
cannot  grow  up,  there  is  no  reason  to  assume  that 
much  cannot  be  gained  by  a  systematic  presenta- 
tion and  study  of  the  money  needs,  if  it  be  made 
in  advance  of  legislative  consideration  and  en- 
actment. The  legislator  is  busy  and  his  time  is 
scant.  Formal  "  estimates  "  presented  by  depart- 
ment and  bureau  chiefs,  revised  after  hearings 
and  investigation  by  the  budget-making  board 
or  officer,  and  brought  together  in  such  form  that 
general  oversight  and  comparison  are  possible 
and  easy,  cannot  fail  to  be  of  great  assistance  to 
the  legislature.  But  these  never  become  bind- 
ing. Any  senator,  congressman,  legislator,  city 
councilman,  or  other  legislative  member  may 
originate  new  spending  or  new  taxes.    With  the 


Efficiency  in  Government  Business     99 

introduction  of  the  initiative,  even  though  it  be 
guarded  and  limited  so  that  money  measures  are 
excluded,  as  it  should  be,  new  projects  calling 
ultimately  for  spending  may  be  launched  which 
will  throw  out  the  most  carefully  prepared  budget. 

What  the  movement  toward  a  budget  system 
really  means  is  that  the  legislative  committees 
of  ways  and  means  and  the  like  have  been  found 
wanting,  either  for  lack  of  time  or  lack  of  ade- 
quate knowledge  and  equipment.  Hence  the  reg- 
ular executive  officers  who  have  the  necessary 
time  and  more  or  less  expert  knowledge  are  be- 
ing called  on  to  aid  the  committees. 

Owing  to  the  absence  of  this  branch  of  exec- 
utive work  in  the  past  the  officers  who  would 
naturally  be  expected  to  prepare  such  a  budget 
have  been  diverted  and  employ  themselves  in 
other  directions.  The  auditor,  controller,  or  other 
officer  of  that  type,  is  today  contented  to  see 
that  the  revenues  are  collected  according  to  law 
and  public  money  is  spent  according  to  law. 
He  rarely  dares  to  assume  that  it  may  be  his 
duty  to  question  the  advisability  of  the  individual 
expenditures,  if  only  they  are  legal,  much  less 
does  he  dare  to  question  the  advisability  of  the 
law  itself.  Possibly  too  much  aggression  might 
endanger  his  office.  Hence  the  determination  of 
the  actual  spending,  within  the  law,  is  left  to  de- 
partment chiefs.  Taxation  goes  by  legislative 
guess,  and  failures  of  income  to  meet  outgo  are 
frequent.  The  only  thing  that  has  saved  us  from 
frequent  and  very  embarrassing  deficits  in  state 


loo  Government  Finance 

and  local  affairs  has  been  the  rapid  growth  of 
property  values  with  the  growth  of  population. 
Tax  revenues  have  grown  rapidly.  But  with 
taxes  climbing  fast  to  two  per  cent  of  the  full 
value  of  property  in  cities  and  one  and  one-quar- 
ter to  one  and  one-half  per  cent  of  rural  prop- 
erty values,  the  day  of  such  careless  spending  is 
coming  to  an  end.  The  limit  of  the  tax-payer's 
patience  if  not  of  his  ability  is  in  sight.  Malad- 
justments of  tax  burdens  become  very  serious 
under  such  circumstances.  Tax  reform  will  do 
something,  but  waste  must  be  stopped. 

Civil  service,  trained  officials,  and  various  de- 
vices for  lessening  the  mediocrity  of  elective  offi- 
cers under  our  democratic  system,  the  organiza- 
tion of  allied  offices  under  responsible  depart- 
mental chiefs,  and  other  reforms  will  do  much, 
but  these  are  not  primarily  fiscal  reforms. 

Boards  of  Control 

There  is  no  sign  that  a  federal  bureau  of 
economy  and  efficiency  is  to  be  established  in 
the  near  future.  But  in  the  states  there  is  a 
rapid  growth  of  "boards  of  control."  These 
are  of  two  types.  First,  there  are  those  which 
aim  to  exercise  an  extensive  pre-audit  of  all 
expenses.  Their  sanction  must  be  had  before 
any  expense  is  contracted,  no  matter  how  well 
within  the  law  it  may  be.  The  second  type  is  a 
board  which  actually  becomes  the  governing 
board  of  some  or  all  state  institutions. 

There  are  two  sets  of  evils  aimed  at  by  these 


Efficiency  in  Government  Business    loi 

reform  boards.  The  first  is  the  incompetence 
of  elected,  and  sometimes  of  appointed  officials 
when  it  comes  to  spending  money  economically. 
The  second  is  the  indifference  and  inertia  of 
"  honorary  "  boards,  trustees,  regents,  etc.,  in  con- 
trol of  asylums,  prisons,  hospitals,  charities,  and 
other  institutions. 

The  experiments  along  these  lines  are  far  too 
recent  to  enable  us  to  judge  how  they  are  going 
to  result.  In  so  far  as  these  boards  of  control 
are  in  addition  to  an  auditor  or  controller's  office 
which  might  have  exercised  these  powers,  they 
are  themselves  an  extravagance.  But  it  is  an 
American  habit  to  create  a  new  office  for  every 
public  duty  which  comes  for  a  time  to  be  prom- 
inent in  the  public  eye.  Witness,  the  "  blue  sky  " 
law  commissioners  doing  the  very  work  for  which 
registration  of  corporation  charters  with  the  Sec- 
retary of  State  was  once  supposed  to  provide. 

In  so  far  as  these  boards  have  introduced  uni- 
form accounting  and  joint,  or  central,  purchas- 
ing, subjected  contracts  and  contractors  to  a  uni- 
form inspection,  and  busied  themselves  catching 
petty  and  large  grafters,  they  seem  to  have  been 
a  success.  A  pre-audit  is  obviously  more  ef- 
fective than  any  post-audit.  It  is  not  yet  ap- 
parent that  they  have  had  any  marked  influence 
on  the  broad  general  policy  of  the  finances  of 
any  state.  But  sometimes  they  have  been  the 
agents  for  carrying  out  or  formulating  some 
broad  policy  outlined  by  an  able  governor. 

Boards  of  the  second  type  seem  less  likely  to 


I02  Government  Finance 

succeed.  An  honorary  board  of  trustees  for  a 
home  for  the  feeble-minded  may  reduce  its 
"  honorary  "  activities  to  a  perfunctory  minimum, 
and  leave  all  real  responsibility  to  a  superin- 
tendent or  manager.  But  a  central  board  of  con- 
trol endeavoring  to  manage  several  large  prisons 
and  the  reform  schools,  a  number  of  insane  asy- 
lums, various  hospitals,  schools  for  the  deaf  and 
blind,  various  "homes"  for  veterans,  for  the 
adult  blind,  the  feeble-minded,  etc.,  several  nor- 
mal schools,  a  state  university,  an  agricultural 
college,  a  number  of  research  stations,  admin- 
istering outdoor  relief  for  widows  and  half-or- 
phans, or  widows'  pensions,  supervising  indoor 
relief  for  state  wards  in  private  institutions, 
supervising  state  buildings,  and  perhaps  running 
some  industry  and  other  matters,  has  obviously 
too  heterogeneous  a  job  for  true  success.  The 
experience  in  Kansas  of  placing  the  university 
with  all  other  state  institutions  under  the  State 
Board  of  Control  and  abolishing  the  special 
boards  has  been  very  unhappy  so  far  as  the  uni- 
versity was  concerned.  The  better  way  would 
seem  to  be  to  leave  the  old  boards  as  they  are, 
revivify  them  if  they  are  not  active,  and  bring 
them  under  the  wholesome  necessity  of  regular 
reports,  and  of  justifying  each  proposed  action 
to  a  central  authority. 

Efficiency  in  Cities 
City  governments  in  matters  of  finance  have 
not  evolved  very  much.     Without  intending  to 


Efficiency  in  Government  Business    103 

be  flippant  we  may  say  that  they  have  "  re- 
volved." For  they  are  just  completing  the  round 
of  a  circle.  Cities  began  with  a  mayor  and  a 
board  of  aldermen  elected  by  wards.  Then 
"  scientists "  urged  that  the  board  should  be 
elected  at  large  and  some  cities  tried  that.  Then 
the  cry  was  that  the  mayor  should  be  shorn  of 
power  and  commissioners  should  take  the  place 
of  mayor  and  board.  The  "  commission  form  " 
of  government,  which  washed  ashore  with  the 
Galveston  tidal  wave,  has  now  been  succeeded  in 
"  scientific "  appreciation  by  the  "  city  manager 
plan,"  left  behind  by  the  subsiding  waters  of  the 
Dayton  flood.  In  passing,  let  us  remember  that 
Johnstown,  Pa.,  which  also  had  a  famous  flood, 
has  the  lowest  per  capita  expense  of  any  city. 
But,  what  is  the  "  city  manager  plan "  but  the 
old  mayor  and  ward  alderman  type  rediscovered? 
To  be  sure  in  going  around  the  circle  we  have 
picked  up  a  few  ideas.  One  of  some  value  is 
the  emphasis  on  permanency  of  tenure  in  the 
mayor's  ofiice,  which  may  bring  to  bear  skill, 
independence  of  action,  and  "  business  "  methods. 

As  there  is  no  real  hope  that  "politics"  can 
ever  be  eliminated  from  city  government,  and  as 
"politics"  in  the  best  sense  of  the  term  has  a 
very  proper  place  in  city  government,  mere 
changes  in  form  have  little  efifcct  on  finances. 

Uniform  and  simplified  accounts  with  much 
publicity  promise  something.  Concentration  of 
all  funds  in  one  treasury  subject  to  warrant  by 
one  auditor  is  much  needed.     But  progress  here 


I04  Government  Finance 

is  extremely  difficult.  As  I  write  I  have  before 
me  possibly  one  hundred  municipal  financial  re- 
ports which  I  have  looked  over.  The  best  of 
them  are  those  which  try  to  conform  to  the 
Census  Bureau  standard  of  uniform  accounts. 
On  their  face  many  of  these  look  very  fair.  But 
when  we  compare  them  with  the  more  compre- 
hensive census  figures  we  find  them  very  defec- 
tive. The  city  auditor  of  one  large  city  says  the 
city  spends  $6,500,000,  the  Census  Bureau  say 
the  total  is  $12,000,000.  The  other  $5,500,000  is 
accounted  for  on  the  books  of  other  than  city 
officers  (in  this  case  county  and  school  district 
officers) . 

In  other  cases  special  taxes,  fees  and  many 
other  public  moneys  are  kept  in  the  office  of  first 
collection  and  disbursed  without  being  paid  into 
the  central  treasury.  Often  when  one  is  able  to 
secure  actual  knowledge  of  local  conditions  he 
finds  the  classification  of  items  has  been  distorted 
to  prove  a  case  for  some  particular  line  of  policy. 
Bookkeeping  cannot  take  the  place  of  human 
judgment,  and  the  man  is  more  important  than 
the  form  of  his  office.  Statutes  and  charters  can 
not  legislate  wisdom  into  office. 

The  Proportion  of  Expenditures  for  Different 
Purposes 
Very  little  attention  is  paid  to  ascertaining  the 
proper  proportion  of  the  available  resources 
which  should  go  to  each  activity.  The  aggressive 
or  adroit  or  able  head  of  some  one  institution, 


Efficiency  in  Government  Business    105 

or  of  a  bureau,  will  sometimes  succeed  in  get- 
ting a  share  of  the  aggregate  funds  entirely  dis- 
proportionate to  the  relative  importance  of  his  in- 
stitution or  bureau.  A  governor,  or  mayor  with 
a  particular  interest  in  some  one  line  of  activity 
may  overstress  that  to  the  detriment  of  other 
activities. 

An  auditor  or  a  board  of  control  making  up  a 
budget  too  often  accepts  the  proportions  of  last 
year  as  correct  and  merely  adds  for  those  neces- 
sities which  seem  most  urgent  or  which  are  most 
forcefully  presented. 

One  board  of  supervisors  will  spend  much 
money  on  roads  and  neglect  the  charities,  the 
next  one  may  spend  too  much  on  the  poor  and  let 
the  roads  go. 

The  problem  is  one  calling  for  the  exercise  of 
wide  powers  of  judgment  and  discretion.  It  is 
not  likely  to  be  solved  by  a  legislative  body  where 
each  member  is  looking  out  for  his  constituents. 
It  would  seem  to  be  the  particular  province  of  a 
president,  a  governor,  or  a  mayor. 

The  only  partial  solution  so  far  found  is  the 
right  of  the  governor,  or  mayor,  to  veto  separate 
items  in  an  appropriation  bill.  Budget  boards 
or  boards  of  control  may  ultimately  help  in  this 
direction. 


CHAPTER  VIII 


PUBLIC    BORROWING 


'T^HERE  are  times  when  governments  are  jus- 
tified  in  borrowing  money.  To  meet  those 
expenses  of  war,  which  exceed  all  the  taxes  the 
people  can  afford  to  pay,  borrowing  is  clearly 
justifiable.  There  are  doubtless  other  occasions 
when  borrowing  is  justifiable.  But  they  are  not 
many,  nor  are  they  so  easy  to  recognize  as  our 
rapid  growth  in  government  indebtedness  would 
seem  to  imply. 

The  federal  government  built  the  Panama 
Canal  with  borrowed  money.  It  may  be  argued 
that  the  canal  is  a  permanent  investment,  and 
that  through  the  benefits  it  will  confer,  it  will 
afford  the  people  and  the  government  the  means 
for  the  payment  of  the  debt.  This  will  probably 
be  the  case.  I  have  little  doubt  of  it.  But  we 
cannot  see  far  enough  into  the  future  to  be  abso- 
lutely sure  even  of  that.  Just  as  the  wireless 
telegraph  is  superseding  the  old  telegraph  poles, 
so  the  air  craft  may  supersede  the  ship.  That  is 
fanciful,  of  course,  but  stranger  dreams  have 
come  true.  It  would  be  wise,  any  way,  to  hurry 
up  and  pay  this  debt. 

A  school  district  "bonds  itself"  to  build  a 
schoolhouse,  which,  it  is  assumed,  is  beyond  its 
present  powers  to  pay  for  out  of  taxes,  even  if 
1 06 


Public  Borrowing  107 

the  cost  were  spread  over  several  years.  The 
bonds  run  for  forty  years,  and  the  annual  in- 
terest charge  diminishes  the  power  to  raise  money 
for  other  purposes.  When  they  fall  due  they  are 
"  refunded "  and  the  debt  continues.  Inciden- 
tally, it  becomes  hard  to  get  any  more  school- 
houses.  The  schoolhouse  has  to  be  maintained, 
and  the  up-keep  eats  up  more  money.  Hence 
some  things  are  left  undone  which  should  be 
done,  or  more  borrowing  is  resorted  to.  Mean- 
while the  building  wears  out,  or,  more  likely, 
goes  out  of  fashion.  Costly,  solid,  many-storied 
buildings,  once  the  "true  ideal"  of  school  archi- 
tecture, may  soon  be  displaced  by  the  one-story 
"  open-air "  schoolhouses,  which  are  infinitely 
better  for  the  purpose,  and  cost  much  less, 
although  they  require  more  land.  But  the  bonds 
voted  by  the  grandfather  for  a  now  antiquated 
structure  must  be  paid  by  the  grandson,  who 
consequently  cannot  have  a  new,  modern  building 
for  his  children.  Yet  there  is  seldom  any  great 
opposition  to  voting  school  bonds. 

The  city  of  Grand  Forks,  North  Dakota,  bor- 
rowed money  to  buy  a  fire  engine.  The  North 
Dakota  "  State  Tax  Association  "  tells  the  story, 
as  follows : 

Fire  engine  cost $  6,000 

Plus  :    interest  35  years  : 

( 1 )  on  $6,000  (a)  7%  for  15  years 6,300 

(2)  on  $5,000  refunding  bonds  @  6%  for  20 

years    6,000 

Total  cost    $18,300 


io8  Government  Finance 

The  engine  went  to  the  junk  heap  ten  years 
ago.  Still  due  on  the  engine,  $5,000.  "  Departed, 
though  dear  to  memory  still." 

These  three  examples  show  three  different  de- 
grees of  permanence  in  outlays  made  with  bor- 
rowed money. 

Jefferson  laid  down  the  rule  that  bonds  should 
not  run  beyond  the  life  of  one  generation.  The 
idea  was  that  we  should  not  pass  on  to  future 
generations  the  burden  of  paying  for  our  facili- 
ties, and  possibly  for  our  follies.  Generally,  it  is 
the  mistakes  which  we  pass  on  in  this  way  to 
our  children  and  to  theirs. 

Another  rule  which  might  be  urged  is :  never 
to  borrow  except  for  improvements  or  enterprises 
of  the  most  unqualified  and  undoubted  perma- 
nence. 

And  still  another  rule  is :  never  borrow  if  the 
taxpayers  can  by  any  possibility  meet  the  pro- 
posed expense  by  taxes  sufficient  to  pay  cash, 
for  the  improvement. 

Although  cities,  because  of  the  assured  char- 
acter of  their  revenues,  need  not  always  follow 
strictly  the  rule  of  sound  private  investment, 
which  is  to  invest  only  savings,  yet  they  should, 
to  enforce  a  feeling  of  civic  responsibility,  make 
some  saving  in  advance  out  of  current  revenues 
before  borrowing.  A  "pay  as  you  go"  policy 
is  a  good  one  for  any  government.  There  is  no 
magic  in  public  bonds  that  is  not  also  to  be  found 
in  many  forms  of  private  credit. 

One  issue  of  bonds  often  leads  to   another. 


Public  Borrowing  109 

Once  a  sentiment  "  in  favor  of  bonds  "  is  created, 
bonds  are  voted  regardless  of  purpose. 

Constitutional  and  charter  restrictions  on  bond 
issues  prevail  everywhere.  They  were  designed 
to  enforce  the  above  rules.  But  everywhere, 
bonds  may  be  voted  if  the  popular  electorate  ap- 
proves and  that  approval  is  most  easily  obtained. 

Let  us  see  how  the  facts  stand.  Our  federal 
debt  is  discussed  under  federal  finances.  It  is  in 
state  and  local  finances  that  the  dangers  of  bor- 
rowing show  up. 

The  states  today  owe :  $400,000,000  gross 

In  1902  they  owed:  261,000,000  gross 

Increase  fifty-four  per  cent. 

Because  of  the  growth  in  population  of  cities 
no  such  exact  comparison  can  be  made.  But  we 
have  the  following  approximation : 

In  1912,  195  cities  over  30,000  owed:  $2,866,000,000, ^ro.y.s 
Or,  less  sinking  funds,  they  owed :      2,040,000,000,  tiet 
In  1902,  160  cities  over  25,000  owed:     1,310,000,000,  <7ro.f.y 
Or,  less  sinking  funds,  they  owed:       1,040,000,000,  n^f 

The  increase  is  very  nearly  one  hundred  per 
cent. 

County  debts  in  1913  were  $372,000,000.  In 
1902  they  were  $200,000,000,  net.  Increase  one 
hundred  and  eighty-six  per  cent. 

District  debts  today  are  not  known.  In  1902 
they  were  outside  cities  $400,000,000. 

In  some  parts  of  the  country  district  debts  are 


no  Government  Finance 

increasing  very  much  faster  than  are  any  other 
group  of  debts.  Within  cities,  debts  incurred  by 
districts  and  not  assumed  by  the  city  corporation 
per  se  are  growing  faster  than  are  the  city  debts 
proper.  But  the  above  figures  include  most  of 
these.  Government  debts  in  obscure  corners,  not 
in  the  eye  of  a  wide  public,  are  rolling  up  rapidly. 

It  is  safe  to  assert  that  public  indebtedness, 
state,  county,  district,  and  municipal,  has  in- 
creased more  than  one  hundred  per  cent  in  the 
last  decade.  This  excludes  special  assessment 
debts. 

Debts  of  a  quasi  public  character,  but  enor- 
mous in  amount,  resulting  from  special  assess- 
ments, often  escape  the  statistician  entirely  and 
do  not  get  into  the  totals,  unless  the  special 
assessments  have  grown  into  quasi  taxes.  Here 
and  there,  one  may  get  news  of  these  debts.  But 
nothing  short  of  a  systematic  search,  involving 
very  great  expense,  will  reveal  the  whole  amount 
thereof,  even  in  one  city.  Thus,  private  collateral 
bonds,  based  on  unpaid  special  assessments,  are 
widely  offered  for  sale.  They  are  advertised  in 
street  cars  and  local  papers.  But  the  aggregate 
of  the  shifting  amount  of  underlying  debt  is  not 
easy  to  ascertain,  even  for  one  city,  let  alone  for 
the  whole  country. 

The  city  of  Seattle  is  built  on  a  steep  hill  rising 
abruptly  from  the  harbor.  The  hill  is  so  steep 
that  to  get  room  for  streets  and  buildings  it  has 
had  to  be  washed  away  into  the  bottom  of  the 
deep  harbor  by  hydraulic  rams.    A  debt  of  $12,- 


Public  Borrowing  iii 

000,000  stands  against  the  property  benefited  by 
this  work.  But  it  is  not  a  debt  of  the  city.  The 
census  bureau  counts  this  in,  but  the  city  auditor 
does  not.  Analagous  debts  in  other  places  escape 
even  the  census  bureau. 

The  budget  of  the  city  of  New  York  calls  for 
$200,000,000,  of  which  over  $55,000,000  is  for 
debt  changes.  The  net  debt  is  reported  for  1912 
as  $1,089,000,000.  One  city  owes  as  much  as 
does  Uncle  Sam! 

What  may  be  called  an  "  orgy  "  of  debt  making 
has  swept  over  California  in  recent  years.  The 
same  is  true  of  some  other  states.  In  1910  the 
cities  of  California  owed  $30,000,000;  in  1912, 
$100,000,000.  In  1907  the  counties,  and  the 
districts  which  are,  in  this  state,  part  of  the  coun- 
ties and  sometimes  lie  in  the  cities,  owed  $6,- 
500,000;  in  1914  they  owed  $57,000,000,  an  in- 
crease of  nearly  ninefold  in  seven  years. 

What  is  all  this  debt  for?  Is  it  for  things 
which  will  endure,  or  is  it  for  fire  engines  and 
the  like,  which  go  to  the  junk  heap  long  before 
the  debt  is  paid? 

The  census  reports  city  debts  as  incurred  for 
the  following  purposes  (rearranged  in  the  order 
of  size)  : 

Public  service  enterprises  and  investments  $  839,000,000 

Water  supply  $475,500,000 

Electric,  etc 15,000,000 

All  other  (the  largest 
items  are  for  docks  and 
wharves)     348,500,000 


112  Government  Finance 

Street  car  systems  will  show  up  in   1913 

and  1914: 
Highways  and  bridges $400,000,000 

Street  pavements   $  42,600,000 

Bridges,   etc 100,700,000 

Other  highway  bonds    . . .  256,600,000 

School  buildings    288,000,000 

Sewers    175,000,000 

Parks    157,000,000 

Government  buildings    69,000,000 

Charities,  hospitals,  etc 43,000,000 

Police  and  fire  departments 37,000,000 

Libraries  and  art  galleries 28,000,000 

$2,036,000,000 
Funding,  refunding,  combined  or  untrace- 
able, with  miscellaneous  630,000,000 

Grand  Total    $2,666,000,000 

This  list  is  very  instructive,  but  not  reassuring. 
To  borrow  money  for  "  public  service  enter- 
prises "  is  tempting.  "  The  investment  will  pay 
the  costs,"  it  is  argued.  Waterworks  are  es- 
pecially attractive  and  necessary.  New  York  has 
her  Croton  system  and  later  developments  and 
owes  $152,000,000  for  it.  Boston  and  surround- 
ing cities  have  the  Metropolitan  water  system 
which  costs  over  $2,000,000  annually  for  debt 
charges  and  maintenance.  Seattle  goes  into  the 
nearby  mountains  and  obtains  a  wonderful  sup- 
ply of  soft  pure  water,  debt  $4,300,000.  Los 
Angeles  not  to  be  outdone  goes  to  the  foot  of 
Mt.  Whitney,  209  miles  away,  and  gets  water, 
debt  $26,200,000,  and  not  done  yet.  San  Fran- 
cisco must,  forthwith,  follow  suit,  and  bring 
water  from  the  Hetch  Hetchey  Valley,  a  hun- 


Public  Borrozving  113 

dred  miles  away,  although  it  has  many  sources 
nearer.  But  this  is  for  the  future.  Waterworks 
are  undoubtedly  one  of  the  most  justifiable  pur- 
poses of  borrowing.  But,  even  here,  too  little 
of  the  investment  is  savings  and  too  much  pure 
borrowings. 

Lighting  plants  and  more  recently  street  rail- 
ways are  much  more  questionable  investments 
for  city  borrowing.  The  heavy  depreciation 
charge  on  electric  plants,  the  rapid  development 
of  methods,  the  uncertainty  as  to  whether  hy- 
draulic or  steam  generation  is  the  cheaper,  make 
lighting  plants  very  dangerous  toys  for  cities  to 
play  with.  How  much  longer  the  street  railways, 
as  we  now  have  them,  will  endure  is  possibly  an 
open  question.  It  is  certain  that  the  acquisition 
of  the  telegraph  lines  by  the  federal  government, 
as  proposed  by  the  Postmaster  General,  would 
simply  result  in  loading  on  to  the  government 
an  antiquated  plant,  for  a  nearly  antiquated 
method  of  communication.  Automobile  passen- 
ger vehicles,  for  short  distances,  and  under- 
ground system  for  longer  runs,  may  put  the  sur- 
face cars  out  of  business  in  a  few  decades.  As 
an  "  investment,"  especially  for  cities,  street  rail- 
ways are  highly  speculative. 

To  borrow  for  bridges,  boulevards,  and  the 
opening  of  new  arteries  for  traffic  is  generally  to 
borrow  for  permanent  acquisitions.  But  surely 
street  pavements  are  not  durable  enough  to  out- 
live any  but  the  shortest  term  bonds.  Sewers 
fall  into  the  same  group  with  highways.     The 


114  Govermnent  Finance 

changes  in  fashion  as  to  school  buildings  has 
already  been  commented  on. 

Parks,  government  buildings,  police  and  fire 
department,  libraries  and  art  galleries  are  all 
rather  dubious  purposes  for  borrowing.  They 
should  be  acquired  from  current  income,  or  sav- 
ings, rather  than  by  debt-making. 

Of  the  now  outstanding  city  debts  more  than 
$1,265,000,000  matures  more  than  twenty  years 
hence.  Of  the  $1,400,000,000  maturing  sooner, 
much  will  be  refunded.  Moreover,  new  debt  will 
doubtless  be  created.  There  is  little  to  indicate 
that  twenty  years  hence  cities  will  owe  less  than 
they  do  today,  or  even  less  per  capita,  or  less  in 
proportion  to  wealth.  On  the  contrary,  unless 
habits  change  wonderfully,  they  will  owe  much 
more.  The  interest  charge  of  $107,000,000  an- 
nually and  sinking  fund  receipts  of  $161,000,000, 
in  all  $268,000,000,  gives  us  a  rough,  but  by  no 
means  exact  measure,  of  the  burden  which  this 
debt  imposes  on  the  total  revenues  of  $849,- 
000,000.  Roughly,  30  cents  of  every  dollar  of 
revenue  receipts  is  pledged  for  debt  charges. 

Accountants  sometimes  try  to  minimize  the 
debt  by  setting  over  against  it  the  assets  of  the 
cities.  For  that  purpose  they  sometimes  use  cost 
values  and  sometimes  replacement  values  of  the 
city's  possessions.  While  there  is  something  to 
be  said  for  this,  where  there  are  income  earning 
properties,  like  waterworks,  there  is  more  often 
no  merit  in  such  a  proceeding,  considering  the 
nature  of  the  other  properties  owned.     Streets, 


Public  Borroiving  115 

bridges,  and  public  buildings  are  rarely  available 
to  be  sold  to  reduce  debt.  On  the  contrary,  as 
they  are  a  constant  source  of  expense,  their  pos- 
session is  as  much  a  liability  as  it  is  an  asset.  The 
benefits  they  confer  go  to  the  citizens,  not  to  the 
city  governments. 

In  view  of  all  the  foregoing  it  would  seem  that 
much  more  caution  should  be  exercised  in  debt 
making.  A  little  slower  pace  in  acquiring  public 
facilities,  a  higher  tax  rate  for  a  few  years,  will 
save  money  and  thus  make  a  faster  growth,  in 
the  long  run,  possible. 


CHAPTER  IX 

The  Equation  of  Receipts  and  Expenditures 

T  N  the  long  run  every  government  must  cover 
its  expenditures  by  its  receipts.  In  any  one 
year  there  may  be  a  deficit  or  a  surplus  of  re- 
ceipts to  be  made  up  later,  or  to  be  covered  by 
borrowing.  Public  accounts  never  speak  of  a 
deficit  of  expenditures,  although  it  is  quite  con- 
ceivable that  we  may  be  spending  less  than  is 
wise.  Nor  do  public  accounts  ever  show  a  sur- 
plus of  expenditures,  although  we  know  that  gov- 
ernments are  often  extravagant.  The  blame,  or 
the  praise,  always  falls  on  the  receipts. 

Obviously  the  fixing  of  the  expenditures  is  so 
largely  a  matter  of  policy,  of  opinion,  and  of  pol- 
itics, good  or  bad,  that  an  accountant  who  would 
record  a  "  surplus  of  expenditure  "  in  place  of 
the  customary  "  deficit  of  revenues  "  would  be 
regarded  as  voicing  a  reproof  to  those  in  power. 
Such  an  accountant  would  be  more  obnoxious 
who  should  venture  to  say  there  was  a  "  deficit 
in  expenditures." 

The  receipts  of  governments  are  of  ten  possible 
classes:  (i)  taxes;  (2)  fees;  (3)  income  from 
investments  and  rent  of  public  property;  (4)  re- 
ceipts from  the  sale  of  property;  (5)  earnings  of 
public  service  and  other  commercial  enterprises; 

116 


Receipts  and  Expenditures  117 

(6)  escheats;  (7)  gifts;  (8)  fines  and  penalties; 
(9)  subventions  from  other  branches  of  govern- 
ment, and  (10)  borrowed  money. 

Of  these  all  are  sufficiently  described  for  our 
present  purposes  by  the  names  given  them  except 
two  —  namely,  taxes  and  fees. 

For  a  complete  discussion  of  the  theory  and 
principles  of  taxation  and  for  more  extended 
definitions  the  reader  will  have  to  look  to  the 
larger  treatises.  Here  we  are  interested  only  to 
understand  the  different  sources  of  revenue  of 
the  different  branches  of  government.  Hence 
very  brief  definitions  are  all  that  are  needed. 

Taxes,  for  the  very  simple  purposes  of  this 
discussion,  may  be  defined  as  "  compulsory  con- 
tributions collected  by  governments,  without  any 
specific  return  being  given  or  promised."  The 
proceeds  of  taxes  are  used  by  governments  for 
such  general,  or  other,  purposes  of  government 
as  the  powers  that  be  decree  to  be  wise,  and  there 
is  no  agreement,  tacit  or  otherwise,  with  the  tax- 
payer that  any  specific  thing  shall  be  done  for 
him  personally  in  return.  Taxes,  therefore,  are 
for  the  general  upkeep  of  government. 

In  the  case  of  fees  there  is  always  some  direct 
return.  So  fees  may  be  defined  as  "compul- 
sory payments  required  when  the  citizen,  or  resi- 
dent, obtains  some  special  service  from  the  gov- 
ernment." If  I  seek  a  marriage  license,  register 
a  deed,  secure  a  building  permit,  or  obtain  a  pat- 
ent, I  have  to  pay  a  fee.  If  the  government 
opens,  grades,  metals,  sewers,  or  curbs  a  street 


ii8  Govcrmiicnt  Finance 

along  or  through  my  property  I  have  to  pay  a 
fee  which  in  this  instance  is  usually  called  a 
"  special  assessment."  The  main  difference  be- 
tween a  tax  and  a  fee  is  the  presence  or  absence 
of  an  implied  or  definite  agreement  on  the  part 
of  the  government  to  make  a  direct  return  in 
some  definitely  specified  service. 

Taxes  fall  into  two  classes,  direct  and  indirect. 
The  plain  and  ordinary  meaning  of  these  terms 
is  sufficient  for  our  present  purpose.  But  there 
has  been  and  still  is  much  discussion  as  to  their 
application  in  special  cases.  The  Federal  Gov- 
ernment was,  by  the  framers  of  the  constitution, 
forbidden  to  use  certain  direct  taxes.  What  the 
constitution  means  by  direct  taxes  has  been  the 
subject  of  much  important  litigation,  for  a  re- 
view of  which  the  reader  is  referred  to  Selig- 
man's  Income  Tax. 

Indirect  taxes  are  known  by  various  names 
which  have  historical  origins ;  they  are  called 
"  customs  duties,"  "  excises,"  "  internal  revenue 
duties,"  or  sometimes  "  license  taxes."  Direct 
taxes  are  usually  known  by  the  things  that  are 
listed  as  the  base,  or,  as  "  subject  to,"  the  tax  in 
each  case.  Such  are  "  poll  "  taxes,  "  property  " 
taxes,  "  income  "  taxes,  and  the  like. 

The  Federal  Government 

The  Federal  Government  depends  mainly  on 
indirect  taxes,  and  recently  has  definitely  ac- 
quired the  right,  granted  before  but  not  too 
clearly,  to  use  an  "  income  "  tax. 


Receipts  and  Expenditures  119 

Federal  Receipts 

A.  Taxes:     Total   1913 $   671,500,000 

1.  Customs     $319,000,000 

2.  Internal   indirect 

taxes     309,000,000 

3.  Corporation    tax....     35,000,000 

4.  Other    taxes 8,500,000 

B.  Fees,  fines,  penalties,  and  gifts 10,500,000 

C.  I.    Incomes  from  investments,  rents, 

sale  of  public   lands  and  prop- 
erty, and  earnings   (other  than 

Post-office)     17,500,000 

2.    Post-office  earnings    267,000,000 

D.  Subventions  and  local  taxes  collected. .  10,000,000 

E.  Trust   funds    12,000,000 

F.  Money  borrowed   23,500,000 

Unclassified   2,000,000 

Total   $1,014,000,000 

None  of  these  19 13  revenues  were  really  elas- 
tic. That  is,  they  could  not  readily  be  made  to 
expand  should  more  money  be  needed.  The  cus- 
toms duties  are  readjusted  only  after  more  or 
less  of  a  political  struggle.  They  are  designed 
primarily  for  purposes  other  than  revenue, 
namely  "  protection  "  to  industries.  To  change 
the  rates  in  order  to  meet  changing  revenue 
needs  is  hardly  feasible.  The  internal  taxes,  un- 
less the  rates  are  violently  changed,  grow  but 
slowly.  The  rates  are  now  very  high  and  if 
raised  much  more  would  so  repress  the  busi- 
nesses from  which  these  taxes  are  derived  as  to 
lessen,  rather  than  increase  the  revenues. 

The  Federal  Government  has,  therefore,  had 
to  cut  its  garments  to  the  cloth.  There  have 
been  a  few  years  when  the  cloth  was  scant.  But 


I20  Government  Finanee 

for  the  most  part  the  cloth  has  been  more  than 
ample.  This  has  led  to  extravagance  at  times. 
That  the  extravagance  has  not  been  greater  than 
it  has  been  is  a  matter  of  good  luck.  Nothing 
but  the  fact  that  the  country  has  had  enormous 
undeveloped  natural  resources,  into  the  exploita- 
tion of  which  the  surpluses  have  been  poured, 
has  saved  us  from  disaster. 

In  19 1 3,  however,  there  was  inaugurated  an 
income  tax.  There  were  a  number  of  all  suffi- 
cient political  reasons  for  the  introduction  of  an 
income  tax,  no  one  of  which  had  any  foundation 
in  fiscal  necessities.  The  income  tax  was  not 
urgently  needed  for  the  revenues  which  it  might 
yield.  It  was  argued  that  the  reduction  of  the 
tariff  rates  would  reduce  the  revenues  from  that 
source.  But  in  so  far  as  that  reduction  accom- 
plishes its  avowed  purpose  of  reducing  the  cost 
of  living,  it  should  increase  importations  and  in- 
crease the  customs  receipts.  How  the  new  tariff 
would  have  worked  out  in  this  respect  we  shall 
never  know  on  account  of  the  war.  In  any  event 
the  yield  of  the  income  tax  has  been  so  small 
that  it  could  not  make  up  much  of  any  deficit. 
That  part  of  the  income  tax  which  is  wholly  new, 
namely  the  tax  on  the  incomes  of  individual  per- 
sons, yielded  $28,000,000.  The  accompanying 
changes  in  the  old  corporation  tax  now  consoli- 
dated into  the  income  tax,  increased  its  yield 
from  $35,000,000  to  $52,000,000,  making  the 
total  $80,000,000. 

Entirely  aside  from  the  far  reaching  political 


Receipts  and  Expenditures  121 

and  social  reasons  which  led  to  the  federal  in- 
come tax  and  from  the  reason  above  discussed 
was  the  argument  that  it  was  needed  for  the  pur- 
pose of  giving  an  elastic  element  to  the  revenue 
system  of  the  Federal  Government. 

Such  a  reason  is  eminently  sound.  The  Federal 
Government  may  at  any  moment  be  plunged  into 
great  expense  and  it  is  wise  to  have  some  "  en- 
gine of  revenue "  which  can  carry  the  load  of 
any  possible  increase  in  expenses. 

But  the  income  tax  as  established,  and  so  far 
as  yet  used,  is  a  veritable  toy.  It  is  like  the 
child's  toy  locomotive.  It  runs  by  "truly 
steam."  It  has  cylinders,  pistons,  and  driving 
wheels,  in  fact  it  is  perfect  in  all  its  parts.  But 
it  pulls  no  freight.  Compared  with  what  Glad- 
stone described  as  that  "  colossal  engine  of 
finance,"  the  British  income  tax,  which  before 
the  war  yielded  $200,000,000  from  a  population 
of  45,000,000  people,  our  income  tax,  which 
raised  less  than  $30,000,000  from  a  population  of 
90,000,000  people — well,  why  not  use  slang?  — 
"  looks  like  thirty  cents."  The  British  income 
tax  .reaches  its  maximum  rate  at  an  income  which 
with  us  is  still  exempt,  namely  $3,000.  The  nor- 
mal rate  was  five  per  cent  in  times  of  slight 
stress  and  nobody  knows  how  much  more,  ulti- 
mately, in  times  of  war.  Our  tax  does  not  reacli" 
one  per  cent  until  one  has  an  income  of  $24,000 
and  the  maximum  is  not  reached  until  the  income 
is  far  above  a  million. 

The  mere  toy  character   of  the  income  tax 


122  Government  Finance 

would  not  be  an  indictment  of  the  sincerity  of  its 
establishment,  if  there  were  any  evidence  of  an 
intention  to  use  it  for  the  purpose  of  elasticity. 
But  on  the  very  first  occasion  for  such  a  use,  the 
recent  so-called  war  taxes,  the  government  turns, 
not  to  the  income  tax,  but  to  new  and  burden- 
some internal  revenue  taxes. 

In  view  of  all  this  it  may  be  stated  in  conclu- 
sion that  the  Federal  Government  has,  as  yet, 
no  orderly  system  in  use  for  establishing  the 
equation  between  expenditures  and  receipts. 
When  receipts  are  large  it  spends  lavishly. 
When  expenditures  outrun  receipts  it  resorts  to 
petty  temporary  and  generally  oppressive  taxes  to 
make  ends  meet. 

State  Governments 

While  the  "  general  property  tax,"  that  is  a  tax 
based  upon  all  kinds  of  property  at  a  valuation 
determined  by  assessment,  is  the  main  source  of 
revenues  for  the  counties,  towns,  and  cities,  it  is 
of  relatively  less  importance  as  a  source  of  state 
revenue. 

The  great  diversity  of  state  activities  has  been 
commented  on  in  connection  with  the  discussion 
of  state  expenditures.  There  is  just  as  much 
diversity  in  tax  systems,  and  in  the  other  rev- 
enues used  by  the  states. 

For  this  reason  general  averages  for  all  the 
states  together  have  little  significance  and  unless 
very  carefully  guarded  are  likely  to  be  mislead- 
ing. 


Receipts  and  Expenditures  123 

But  the  following  general  statements  are  fairly 
safe.  About  sixty  per  cent  of  the  revenues  of 
the  states  come  from  taxes  of  all  kinds.  This 
proportion  is,  however,  increasing.  About  thirty 
per  cent  of  all  the  revenues,  or  just  about  one- 
half  the  taxes,  of  the  states  comes  from  the  gen- 
eral property  tax.  The  states  are  depending 
heavily  on  borrowing  to  keep  the  balance  between 
receipts  and  expenses.  The  states'  receipts  from 
the  sale  of  lands  are  bound  to  decrease.  The 
states'  receipts  from  investments  and  public 
property  are  being  more  and  more  outstripped 
by  interest  charges  on  the  growing  debts.  The 
states  have  a  rapidly  growing  need  of  more  tax 
revenues. 

The  diversity  of  state  revenue  systems  is  so 
great  that  here,  as  in  the  case  of  expenditures, 
we  are  forced  to  resort  to  examples. 

Examples  of  State  Revenue  Systems 

We  saw  how  Rhode  Island  has  emerged  from 
a  condition  where  state  activities  were  relatively 
small  and  has  developed  a  considerable  need  for 
revenues  of  its  own.  It  still  retains  a  share  of 
the  general  property  tax.  But  the  state  tax  rate 
has  always  been  low.  For  many  years  it  was 
only  eighteen  cents  on  the  $100  of  assessed  valua- 
tion. In  1912  it  was  cut  down  to  nine  cents. 
Just  before  that  year  the  state  began  to  build 
up  its  own  sources  of  revenue. 

The  sources  resorted  to  are  so  instructive  that 


124  Government  Finance 

they  are  worth  citing  in  full,  especially  because 
they  show  the  diversity  of  taxes  being  used. 

Rhode  Island's  State  Revenues  1913 

1.  The  "direct"  tax    $561,000 

2.  Tax  on  savings  accounts 552,000 

3.  Tax  on  insurance  207,000 

4.  Fines,  penalties,  and  forfeiture  60.000 

5.  Corporation  charters    22,000 

6.  Public  service  corporations 213,000 

7.  Bank  shares    70,000 

8.  Manufacturing    and    mercantile    corpora- 

tions          550,000 

9.  Oyster  grounds 130,000 

10.  Municipal  licenses   184,000 

11.  Miscellaneous    460,000 

12.  Borrowed    450,000 


Total    $3,459,000 

Thus  Rhode  Island  now  has  revenues,  inde- 
pendent of  the  property  tax  and  of  borrowing, 
amounting  to  over  seventy  per  cent  of  her  needs. 
She  has  no  inheritance  tax,  although  one  is  under 
discussion. 

California  has  for  five  years  had  complete 
separation  of  state  from  local  taxation.  That  is 
she  has  not  levied  a  general  property  tax  for 
state  purposes  during  that  period.  Her  state 
revenues  come  from  taxes  on  certain  classes  of 
public  service  companies,  taxes  on  banks  and  in- 
surance companies,  taxes  on  corporate  franchises, 
an  inheritance  tax  and  an  automobile  license  tax ; 
in  all  $16,000,000  in  19 13- 14.  The  total  of  $36,- 
000,000  on  $20,000,000  more  was  made  up  of  a 
poll  tax,  now  repealed,  a  corporation  license  tax, 


Receipts  and  Expenditures  125 

repealed  in  1913,  reenacted  in  1915,  earnings  of 
state  property  of  which  the  San  Francisco  harbor 
is  the  largest  source,  earnings  of  state  institu- 
tions among  which  are  the  earnings  of  prisons, 
a  multitude  of  fees  and  miscellaneous  items,  and 
$11,000,000  of  borrowed  money.  The  state  is 
borrowing  for  highways,  the  harbor,  and  new 
buildings. 

The  increase  in  state  activities  has  been  very 
great.  The  curtailment  of  revenues  by  the  re- 
peal of  two  important  taxes,  the  poll  tax  and  the 
corporation  license  tax,  together  with  the  growth 
of  state  activities  has  swamped  the  state's  inde- 
pendent revenue  system.  New  taxes  will  have  to 
be  devised  or  there  must  be  a  general  ad  valorem 
tax  to  make  up  the  deficit.  The  lack  of  correla- 
tion between  income  and  outgo  is  marked. 

Kentucky,  whose  burdens  we  reviewed  briefly, 
has  a  state  revenue  system  which  in  some  re- 
spects shows  the  characteristic  of  the  southern 
states  in  general.  In  the  first  place  she  has  a  flat 
rate  of  fifty  cents  per  $100  of  assessed  value  on 
all  property  in  the  state.  This  rate  is  not  changed 
very  frequently.  No  attempt  is  made  to  adjust 
the  rate  each  year  to  meet  changes  in  the  needs 
for  revenues.  This  is  quite  the  reverse  of  the 
practice  of  northern  states  or,  more  especially, 
of  western  states.  The  state  simply  takes  what 
this  rate  yields.  The  amount  is  about  $4,000,000 
per  annum.  The  state  also  has  a  number  of 
other  taxes.  In  some  of  these  the  local  govern- 
ments, especially  the  counties,  share,  as  they  do, 


126  Government  Finance 

also,  in  the  general  property  tax.  In  the  main 
these  are  only  parts  of  the  general  property  tax, 
and  are  "  separated  "  only  in  so  far  as  the  state's 
share  is  paid  directly  to  the  state  by  the  taxpay- 
ers, instead  of  being,  as  are  the  taxes  on  real 
estate,  collected  by  the  county  officers  and  re- 
mitted to  the  state.  These  are  the  taxes  on 
bank  stocks,  distilled  spirits,  franchises,  and  rail- 
roads. There  are  also  taxes  on  inheritance,  on 
insurance  companies  and  a  number  of  miscellane- 
ous subjects. 

But  characteristic  of  Kentucky,  and  more  so 
even  of  many  another  southern  state,  is  the  ex- 
tensive use  of  business  license  taxes.  Among 
these  "  licenses "  common  in  the  south  but  not 
all.  used  by  Kentucky  are  four  groups:  (i) 
licenses  on  saloons  and  the  sale  of  liquor;  (2) 
licenses  on  amusements;  (3)  licenses  on  lines  of 
business  which  are  so  organized  as  not  to  use 
much  tangible  property  which  is  subject  to  the 
property  tax,  such  as  peddlers,  solicitors,  agents, 
brokers,  auctioneers,  and  many  others ;  (4)  busi- 
ness taxes  on  all  kinds  of  manufacturers  and 
merchants,  so  arranged  that  they  are  in  a  meas- 
ure substitutes  for  any  taxes  which  might  have 
been  levied,  but  are  not,  on  stocks  of  merchan- 
dise on  hand.  The  fourth  class  is  not  particu- 
larly represented  in  Kentucky,  although  just 
across  the  line  in  Tennessee  they  are  strong. 

Kentucky  also  has  a  state  tax  on  dogs,  which  it 
is  interesting  to  note  yields  $100,000  a  year,  a 
sum  larger  than  all  the  taxes  she  succeeds  in  col- 


Receipts  and  Expenditures  127 

lecting  on  money  and  credits  of  all  kinds.  Much 
of  the  dog  tax  goes  to  pay  for  damages  done  by 
vicious  dogs  to  sheep.  The  totals  show  up  as 
follows : 

Kentucky  Revenues,  191  i 

A.  Taxes  proper $6,192,000 

B.  Fees    iS7,ooo 

C.  Earnings  of  property   15,000 

D.  Earnings  of   institutions    381,000 

E.  Fines   and   forfeitures    65,000 

Total    $6,810,000 

The  state  is  running  behind  at  the  rate  of  about 
$300,000  each  year.  This  is  financed  by  the 
crude  expedient  of  issuing,  in  payment  of  her 
dues,  interest  bearing  warrants,  which  the  banks 
buy  at  a  discount.  These  are  steadily  accumu- 
lating and  now  amount  to  about  $2,500,000.  She 
has  also  borrowed  from  herself  most  of  her  trust 
funds  and  this  debt  represents  about  $2,500,000 
more. 

Minnesota  is  justly  proud  of  her  revenue  and 
tax  system.  It  is  excellently  administered  and 
fairly  equitable.  She  leans  on  the  general  prop- 
erty tax  for  $3,250,000  out  of  nearly  $9,000,000 
of  taxes.  She  collects  $5,000,000  for  state  pur- 
poses from  gross  receipts  taxes  on  railroads  and 
certain  other  public  utilities,  has  an  inheritance 
tax  and  other  minor  taxes  yielding  some  $650,000 
in  1912.  In  1910  she  made  nearly  $4,000,000 
from  her  state  institutions  and  investments  of 
various  kinds.    In  1914  her  independent  revenues 


128  Government  Finance 

alone  amounted  to  $9,000,000,  and  she  had  to 
resort  to  the  general  property  tax  for  less  than 
$3,000,000.  She  has  no  funded  debt  but  has  met 
large  expenditures  for  new  buildings  and  lands 
by  short  time  notes,  which  she  can  easily  carry. 

This  state  strikes  an  exact  balance  between 
outgo  and  income  by  adjusting  the  rate  of  the 
state  tax  on  general  property  each  year. 

It  would  be  interesting  to  know,  if  it  were  pos- 
sible to  ascertain  it,  in  how  far  the  well-ordered 
condition  of  this  state's  finances  is  due  to  the 
fact  that  the  same  man  has  been  auditor  for 
twelve  years,  and  that  two  members  of  the  three 
members  and  the  secretary  of  the  strong  central 
tax  commission  have  served  since  its  inception  in 
1907. 

Massachusetts  leans  on  the  general  property 
tax  for  nearly  $(S,ooo,ooo  and  has  independent 
revenues  of  $9,500,000.  The  independent  state 
revenues  consist  mainly  of  the  inheritance  tax 
and  a  complex  system  of  corporation  taxes.  They 
are  too  complex  for  detailed  description  in  a 
short  space. 

For  a  number  of  years  New  York  succeeded  in 
living  on  her  independent  state  revenues.  But  she 
has  recently  increased  her  state  expenses  so 
largely  that  she  has  had  to  resort  to  a  state  tax  on 
general  property  again.  In  1910  the  state's  rev- 
enues, exclusive  of  a  small  ad  valorem  tax  for 
special  purposes  were  $37,500,000;  in  1912  they 
rose  to  $44,000,000,  but  the  state  raised  $6,- 
000,000  more,  exclusive  again  of  the  small  tax 


Receipts  and  Expenditures  I2g 

for  special  purposes,  by  a  general  state  levy.  In 
191 3  the  state's  segregated  taxes  fell  to  $40,- 
000,000,  and  $11,000,000  was  raised  by  direct 
taxation.  Some  people  look  upon  these  figures 
as  an  illustration  of  the  saying  "facilis  descensus 
avcrni."  New  York's  independent  state  taxes 
consist  of  a  complex  system  composed  mainly  of 
corporation  taxes,  too  complex  for  description 
within  the  space  at  our  disposal. 

Illinois  is  dependent  very  largely  on  an  anti- 
quated form  of  the  general  property  tax.  Out 
of  $14,000,000  annual  revenues  for  the  year  end- 
ing September  30,  1912,  nearly  $11,000,000  came 
from  the  property  tax.  Another  $1,200,000  came 
from  the  Illinois  Central  Railroad,  which  pays 
seven  per  cent  of  its  gross  receipts  in  lieu  of  all 
other  taxes.  The  miscellaneous  state  revenues 
are  therefore  relatively  small;  they  include  a  tax 
on  insurance  companies,  and  an  inheritance  tax. 

The  general  property  tax  in  Illinois  is  based 
on  practically  uncontrolled  local  assessments  of 
property  by  township  assessors  in  that  part  of  the 
state  where  the  township  system  prevails,  and 
elsewhere  by  county  assessors.  In  Cook  county, 
where  Chicago  lies,  the  assessment  is  made  by  a 
Ijoard  of  five  assessors.  A  striking  feature  is  the 
rule  laid  down  by  law  that  the  assessment  has  to 
be  at  thirty  per  cent  of  true  value.  But  it  ap- 
pears to  be  very  much  lower  than  that,  probably 
only  one-fifth  of  true  value.  There  is  no  central 
control  over  the  assessment,  and  the  State  Board 
of  Equalization  is  reported  to  be  "  a  clumsy  and 


130  Government  Finance 

ineffective  body."  An  interesting  side  light  is 
thrown  on  the  tax  system  by  the  fact  that  the 
school  teachers  brought  a  suit  to  compel  the 
assessment  of  certain  classes  of  property.  When 
such  methods  have  to  be  resorted  to  the  tax  sys- 
tem must  be  badly  administered  indeed.  Al- 
though the  general  tax  burden  in  Illinois,  special 
assessments  for  local  improvements  being  ex- 
cluded, is  not  yet  very  heavy,  nevertheless  its 
rapid  growth  promises  to  make  the  inequalities 
more  and  more  burdensome  and  to  force  a 
reform. 

County  and  Local  Revenues  Other  Than  Large 
Cities 

Much  over  ninety  per  cent,  probably  nearly 
ninety-five  per  cent,  of  all  local  revenues,  exclu- 
sive of  the  revenues  of  large  cities  comes  from 
the  property  taxes  and  from  subventions  from 
the  states.  About  eighty-five  per  cent  comes 
from  the  general  property  taxes  levied  on  prop- 
erty within  the  counties,  districts,  or  towns.  The 
other  sources  are  poll  taxes,  liquor  licenses,  and 
in  the  southern  states  county  and  local  business 
licenses  paralleling  the  state's  business  license 
taxes. 

The  general  property  tax  is  essentially  a  neigh- 
borhood tax ;  that  is,  it  is  admirably  adapted  to 
apportioning  neighborhood  charges  among  neigh- 
bors. If  well  administered  it  is  admirably 
adapted  to  the  revenue  needs  of  counties  and 


Receipts  and  Expenditures  131 

their  local  divisions.  The  main  difficulties  are 
those  connected  with  obtaining  an  equitable 
assessment  and  with  the  apportionment  of  taxes 
to  different  subdivisions  of  the  counties.  These 
difficulties  call  for  an  increasing  amount  of  cen- 
tral control  and  supervision. 

While  the  general  property  tax  as  a  local  tax 
has  many  merits,  yet  as  it  is  administered  in  most 
parts  of  the  United  States  today  it  has  grave 
faults.  Most  of  these  arise  from  the  weaknesses 
of  the  administration,  or  more  particularly,  of  the 
assessment  work. 

There  are  many  parts  of  the  United  States  to 
which  the  following  remarks  do  not  apply. 
But  they  do  apply  to  the  greater  part  of  the 
country. 

The  officers  to  whom  the  important  and  diffi- 
cult task  of  making  the  assessment  is  entrusted 
are,  too  often,  elected  without  reference  to  pre- 
vious training  or  experience.  They  serve,  too 
often,  for  but  a  short  time  and  gain  no  experi- 
ence. Their  districts  are,  too  often,  too  small, 
so  that  their  compensation  is  incommensurate 
with  the  importance  of  the  duties.  They  depend 
too  much  on  the  tax-payers'  own  statements, 
which  they  are  unable  to  verify.  It  is  not  safe  to 
assume  that  taxpayers  will  list  all  their 
taxable  property.  We  know  that  they  don't 
and  won't. 

Assessors  are,  too  often,  unequipped  with  the 
necessary  tools  and  facilities  for  their  work.  As 
the    assessment    must   be    completed    in    a    few 


132  Government  Finance 

weeks,  the  assessor  of  a  small  district  is  often 
without  a  proper  room  even  for  his  office.  Too 
often,  he  has  no  tax  maps.  Yet  a  good  map  is 
the  first  prerequisite.  Inexperienced  and  un- 
trained as  he  often  is  he  is  given  no  instructions, 
guidance,  or  supervision.  He  is  supposed  to  en- 
force a  law  which  is  almost  the  most  complex 
on  the  statute  book,  and  there  is  no  assurance 
that  he  can  read  that  law  understandingly. 

The  author  used  this  illustration  in  the  report 
of  the  special  tax  commission  of  the  State  of 
Kentucky  of  19 12  : 

"Assessing  the  multifarious  properties  in  a 
county  is  analogous  to  taking  a  valued  inventory 
of  the  stock  in  a  great  department  store.  What 
business  man  would  employ  a  green  clerk  for 
such  an  inventory,  set  him  to  work  without  a 
word  of  instruction  as  to  where  things  are  or 
what  they  are  worth,  and  give  him  nothing  to  go 
by  but  last  year's  inventory  (all  full  of  errors), 
and  the  list  of  new  purchases,  and  then  go  away 
and  leave  him  to  shift  for  himself  as  best  he 
could?  If,  after  once  having  committed  such  a 
folly,  what  business  man  would,  as  soon  as  that 
inventory  clerk  had  acquired  for  himself  a  little 
knowledge  and  experience,  discharge  him  and 
put  in  another  man  whose  sole  qualification  had 
to  be  that  he  had  never  done  any  of  that  kind 
of  work  before?  Can  a  carpenter  build  a  house 
without  plans  and  specifications,  and  without 
tools  —  a  hammer,  saw,  or  plane?  Yet  this  is 
what  the  law  expects  the  assessor  to  do." 


Receipts  and  Expenditures  133 

A  peculiarity  of  the  Kentucky  law  was  that 
the  assessor  was  not  eligible  for  re-election. 

The  political  influences  under  which  the  asses- 
sor does  his  work  are  bad.  If  he  seeks  re-elec- 
tion he  must  make  friends.  The  easiest  way  to 
make  friends  is  to  "  play  favorites  "  in  the  assess- 
ment. 

The  remedies  are  so  apparent  that  it  is  a  won- 
der that  they  are  so  often  overlooked. 

The  work  of  the  assessor  is  technical,  difficult, 
and  hard  to  learn,  but  it  is  interesting,  and  that 
being  so  the  office  should  offer  an  honorable 
career  for  life.  The  assessor  should  be  able  to 
look  upon  his  office  as  a  profession,  not  as  a  cas- 
ual employment.  The  districts  should  be  large 
enough  to  warrant  paying  a  good  man  to  give  all 
his  time  and  life  to  the  work.  The  assessor 
should  be  given  tools,  and  all  equipment  neces- 
sary. He  should  be  guided  and  supervised 
and  protected,  by  working  under  rules  and 
enforcing  standards  prescribed  by  a  superior 
authority. 

This  calls  for  a  strong  central  tax  commission. 

Municipal  Revenue 

The  large  cities,  whose  expenditures  we  re- 
viewed at  some  length,  have  a  great  diversity  of 
revenues.  The  following  table  includes  certain 
receipts  of  school  districts  and  other  districts 
within  the  cities,  when  those  districts  perform 
functions  which  arc  practically  municipal. 


134  Government  Finance 

Municipal  Revenues,  1913 

Per  Cent 

Total    $866,000,000  100 

General  property  taxes 526,000,000  60.7 

Special  property  taxes 12,500,000  1.4 

Poll  and  occupation  taxes 1,500,000  0.2 

Business  taxes    53,000,000  6.1 

Non-business  license  taxes 4,000,000  0.5 

Special  assessments    72,500,000  8.4 

Fines,  forfeitures,  and  escheats.,       4,500,000  0.6 

Subventions  and  grants 34,500,000  4.0 

Donations,  gifts,  and  pension  as- 
sessments           4,000,000  0.5 

Earnings  of  general  departments.     21,000,000  2.4 

Highway  privileges  12,500,000  1.4 

Rents  of  investment  properties...       9,000,000  i.o 

Interest   24,500,000  2.8 

Earnings  of  waterworks 71,000,000  8.2 

Other  earnings  i5,5C)0,ooo  1.8 

In  addition  to  these  revenues  available  for 
spending  on  current  affairs  there  were  other  re- 
ceipts as  follows : 

Non-revenue  receipts    $996,000,000 

From  sales  of  investments  76,500,000 

From  sales  of  supplies 360,000 

From  issue  of  debt  obligations 637,000,000 

From  trust  and  agency  transactions 80,500,000 

From  counter-balancing  transactions   8,000,000 

From  general  transfers   193,500,000 

Restated :  The  195  cities  had  revenues 
amounting  to  $866,000,000,  borrowed  $637,000,- 
000  more  and  disposed  of  property  amounting 
to  about  $77,000,000,  so  that  without  trust 
moneys  and  bookkeeping  entries,  the  aggregate 
is  $1,580,000,000.  The  cities  ran  behind  and 
borrowed.     But  the  $637,000,000  is  not  all  new 


Receipts  and  Expenditures  135 

debt.  They  paid  off  $464,000,000  of  debt,  so  the 
net  debt  grew  $173,000,000.  $340,000,000  out 
of  the  $637,000,000  borrowed  was  borrowed  by 
New  York,  whose  total  revenues  were  $205,500,- 
000,  or  only  about  one- fourth  of  her  aggregate 
funds.  She  paid  off  $265,000,000  of  old  debt 
with  new  debt,  so  her  net  increase  of  debt  was 
$75,000,000.  But  even  omitting  New  York, 
thirty-six  per  cent  of  the  gross  receipts  of  cities 
came  from  borrowed  money. 

A  comparison  of  past  years  shows  still  more 
clearly  where  the  cities  are  going  in  the  matter 
of  finance.  We  have  in  the  census  reports  con- 
tinuous data  for  146  cities  for  eleven  years, 
1902-1912  inclusive.  The  population  of  these 
cities  increased  from  20,400,000  in  1902  to  27,- 
400,000  in  1912,  an  increase  of  thirty-four  per 
cent.  The  items  which  the  census  classes  as  "  net 
government  cost  payments "  grew  from  $463,- 
000,000  in  1902  to  $907,000,000  in  19 12  or  ninety- 
six  per  cent.  That  is  the  expenses  grew  two  and 
three-quarter  times  as  fast  as  the  population. 
The  debts  increased  from  $900,000,000  to  $1,933,- 
000,000  or  115  per  cent,  that  is,  debts  are  now 
two  fold  what  they  were  ten  years  ago  and 
fifteen  per  cent  over.  The  inference  to  be  drawn 
needs  no  further  statement. 

"  Net  revenue  receipts  "  increased  from  $420,- 
000,000  in  1902  to  $788,000,000  in  19 1 2  or  eighty- 
seven  and  eight-tenths  per  cent,  which  is  eight 
and  two-tenths  per  cent  short  of  the  increase  in 
expenses. 


136  Goverfimcnt  Finance 

Some  slight  encouragement  is  afforded  by  the 
fact  that  of  the  195  cities  over  30,000  which  were 
reported  by  the  census  in  1913,  forty-eight  had, 
in  that  year,  reduced  their  debt,  but  for  the  whole 
group  there  was  a  net  increase  of  $135,000,000. 

Conclusion 

In  view  of  all  the  foregoing  facts  the  follow- 
ing conclusion  seems  to  be  forced  upon  us :  The 
expenses  of  city,  county,  and  state  governments 
are  increasing  more  rapidly  than  are  the  revenues. 
More  and  more  are  the  expenses  being  met  by 
borrowing.  The  borrowed  money  is  being  spent 
on  buildings  and  other  public  improvements 
which  call  for  increased  expenses  for  up-keep. 
Revenues  must  be  increased  from  some  source. 
If  expenses  are  going  to  continue  to  increase  as 
they  have  been  increasing,  and  the  debt  charges 
are  to  be  met,  then  the  annual  increase  in  rev- 
enues must  be  at  least  ten  per  cent  per  annum 
and  probably  more. 

Since  the  main  source  of  revenue  for  all  these 
governments  is  the  property  tax,  the  question  at 
once  presents  itself,  "  how  much  longer  can  this 
one  tax  stand  the  strain  ? " 

There  are  too  many  differences  between  differ- 
ent parts  of  the  country  to  permit  of  a  universal 
answer  to  this  vital  question,  even  if  we  knew 
enough  of  the  essential  facts,  which  unfortu- 
nately is  not  the  case.  In  some  places  the  tax 
burden  is  very  heavy,  although  the  taxes  may 


Receipts  and  Expenditures  137 

seem  small.     In  others  the  taxes  are  large  but 
are  lightly  carried. 

The  great  difficulty  is  that  "  assessed  "  value  is 
not  "  true  value,"  and  many  kinds  of  property 
escape  taxation.  To  get  an  accurate  measure  of 
the  tax  burden  we  ought  to  know  the  ratio  of  the 
tax  to  the  net  income  of  the  property  taxed. 
Even  that  would  be  subject  to  various  interpre- 
tations. Sometimes  efforts  have  been  made  to 
establish  the  rate  of  the  tax  to  the  true  value  of 
the  property.  This,  assuming  that  the  true  value 
is  based  on  the  net  income,  might  help.  But  still 
it  is  subject  to  different  interpretations  in  indi- 
vidual cases.  Thus  it  was  established  in  Cali- 
fornia that  the  ratio  of  local  taxes  to  the  true 
value  of  farm  lands  and  of  urban  real  estate 
averaged  for  the  state  at  large :  One  per  cent 
in  1905,  1. 10  per  cent  in  19 12,  and  1.21  per  cent 
in  19 14.  But  we  have  no  way  of  knowing  how 
these  rates  affected  different  kinds  of  lands.  The 
Minnesota  Tax  Commission  established  some- 
what similar  average  ratios  for  that  state,  as 
0.964  per  cent  in  191 1,  and  1.097  per  cent  in 
1912.  In  Wisconsin  the  rate  was  reported  as 
1.03T  per  cent  in  1906  and  1.109  per  cent  in  191 1. 
But  in  each  of  these  states  the  central  or  state 
government  has  large  independent  revenues. 
These  three  states  are  rich  and  their  government 
finances  are  in  fairly  good  order.  In  other  states, 
whether  merely  backward  or  poor,  we  find  over 
and  above  these  basic  rates  a  state  tax.  In  Ken- 
tucky the  state  and  county  rates  average  a  little 


138  Government  Finance 

over  0.62  per  cent  of  true  value.  But  in  the  four 
large  cities  of  that  state  the  city  rates  alone  range 
from  one  per  cent  to  1.31  per  cent  more,  or  from 
1.62  per  cent  and  1.93  per  cent  in  all. 

In  any  case  the  taxes  on  city  real  estate  are 
now  very  heavy.  There  are  those  who  look  upon 
this  with  complacency  as  a  partial  confiscation  of 
the  "  unearned  increment,"  a  partial  application 
of  the  "  single  tax."  But  I  am  one  of  those  who 
believe  that  the  confiscation  of  the  so-called  un- 
earned increment  will,  by  lessening  the  beneficent 
influence  of  private  property  in  land  as  an  eco- 
nomic force,  work  a  serious  injury  to  all  society. 
Be  that  as  it  may,  the  same  tax  rates  fall  on  the 
improvements  on  the  land  and  on  some  kinds  of 
personal  property  which,  as  these  bear  no  eco- 
nomic rent,  or  yield  no  unearned  increment, 
should  not,  by  the  above  reasoning,  pay  as  much 
tax  as  land. 

The  foregoing  abstruse  considerations  and 
complex  computations  are  "  great  fun  "  for  the 
tax  experts,  but  are  doubtless  "  all  Greek  "  to  the 
layman.  For  the  latter's  benefit  we  may  inter- 
pret them  broadly.  The  substance  of  them  is, 
that  the  various  branches  of  government  have 
acquired  a  sort  of  partnership  interest  with  the 
tax-paying  owner  in  all  taxed  property.  If  the 
average  farm  will  yield  six  per  cent  on  what  it 
would  sell  for,  the  government  takes  a  little  over 
one  per  cent  out  of  the  six,  leaving  the  owner 
five  per  cent.  It  is  as  though  the  government 
owned  one-sixth  of  the  farm.     On  city  property 


Receipts  and  Expenditures  139 

it  is  more,  probably,  over  one  and  one-half  per 
cent  or  a  one- fourth  interest.  But  the  govern- 
ment's share  is  growing  larger  all  the  time. 

The  commissioners  of  taxes  and  assessments 
of  New  York  City  have  stated  that  four  to  four 
and  one-half  per  cent  is  a  sufficient  rate  at  which 
to  capitalize  the  net  income  of  real  estate  in  that 
city.  At  that  rate  the  taxes  now  levied  in  New 
York  are  about  thirty  per  cent  of  the  income  of 
real  estate.  In  times  of  peace  five  per  cent  is  a 
high  rate  for  an  income  tax  in  Europe  and  ten 
or  twelve  per  cent  is  a  "  war  tax."  Hence  thirty 
per  cent  is  certainly  to  be  regarded  as  heavy. 

Real  estate  values  increased  in  New  York  City 
between  1912  and  1913  less  than  two  per  cent, 
between  1913  and  1914  barely  six-tenths  of  one 
per  cent.  From  191 1  to  1914  the  increase  has 
been  seven  per  cent,  or  roughly  two  and  one-third 
per  cent  annually.  It  will  require  a  heavy  ad- 
vance in  real  estate  values  to  enable  them  to  keep 
pace  with  the  growth  of  taxes. 

It  seems  clear,  then,  that  the  general  property 
tax  cannot  stand  the  increase  in  tax  burden  much 
longer.  Certainly  it  ought  not  to  be  called  upon 
to  do  so. 

As  a  matter  of  fact  new  sources  of  government 
revenue  are  being  constantly  sought  and  found. 
As  we  have  seen,  most  of  these  belong  to  the 
states.  But  even  the  cities  are  using  many  other 
sources. 

In  1912  a  sub-committee  of  the  commissioners 
of  taxes  and  assessments  of  New  York  City  made 


140  Government  Finance 

a  report  on  New  York  state  as  a  whole,  which 
seems  to  show  that  the  growth  of  special  taxes  of 
one  sort  or  another  had  reduced  the  proportion 
of  all  the  taxes  borne  by  real  estate  from  eighty- 
seven  per  cent  in  1880  to  sixty-five  per  cent  in 
19 1 3.  The  form  of  presentation  is  not  very  clear 
nor  convincing.  But  a  total  of  $45,600,000  of 
taxes  more  or  less  independent  of  the  property 
tax  or  taking  the  place  of  parts  thereof  has  been 
developed  in  that  state.  The  same  tendency  is 
observable  all  over  the  country. 

Tax  Reform  Now  in  Progress 

The  pressure  of  growing  expenses  upon  sta- 
tionary revenues  is  everywhere  the  main  spring 
of  tax  reform. 

While  many  new  theories  of  taxation  have 
been  promulgated,  none  have  had  any  perceptible 
eflfect.  But  the  need  for  more  revenue  has  very 
often  brought  reforms. 

There  are  three  lines  of  successful  tax  reform 
going  on  in  this  country  at  the  present  time.  In 
many  states  they  are  being  tried  in  combination. 

The  first  is  an  improved  and  centralized  admin- 
istration of  taxation. 

The  second  is  the  segregation  of  different 
sources  of  revenues,  some  being  assigned  to  the 
state  and  others  to  the  local  governments.  This 
has  come  to  be  technically  known  as  "  separa- 
tion." A  form  of  this,  more  often  known  as 
"  classification "  of  taxable  property,  is  some- 
times associated  in  thought  with  the  first  reform. 


Receipts  and  Expenditures  141 

The  idea  is  that  some  classes  of  property,  like 
money  and  credits,  which  cannot  stand  the  heavy 
taxes  placed  on  real  estate,  should  each  be  taxed 
in  a  different  manner  and  at  a  different  rate. 
Another  phase  of  this  is  the  so-called  "  fractional 
assessment"  plan.  Under  this,  each  class  of 
property  is  valued  at  a  different  rate  of  assessed 
to  true  value. 

The  third  is  the  finding  of  new  taxes,  either  as 
substitutes  for  the  old  ones,  or  to  reach  tax- 
paying  ability  not  touched  before. 

Improved  Administration 
The  movement  for  improved  administration  is 
very  widespread.  The  weakness  and  lack  of  skill 
of  the  locally  elected  assessors  is  vmiversally 
recognized.  The  remedy  is  a  strong  central  tax 
commission  with  control  over  the  local  assessors. 
The  degree  of  control  to  be  exercised  depends  on 
local  conditions.  In  most  cases  of  accomplished 
reform  it  does  not  go  far  beyond  the  supervision 
and  instruction  of  locally  selected  assessors,  with 
some  power  of  discipline.  The  last  is  usually 
limited  not  to  exceed  the  power  to  bring  an 
action  for  dismissal. 

The  success  of  this  line  of  reform  depends 
mainly  on  the  prescription  of  right  methods  of 
assessment,  of  strict  rules  of  valuation,  the  re- 
quirement of  tax  maps,  and  similar  technical 
matters.  It  is  essential  that  the  assessment  dis- 
tricts be  large  enough  so  that  the  work  will 
require  all  of  the  assessor's  time,  and  also  large 


142  Government  Finance 

enough  so  that  the  compensation  available  will 
be  sufficient  to  attract  a  good  man  and  hold  him. 
Civil  service  methods  of  appointment  are  desir- 
able but  not  absolutely  necessary. 

Such  central  control  is  almost  a  sine  qua  non 
for  success  where  the  general  property  tax  is 
the  main  support  of  all  three  branches  of  govern- 
ment—  state,  county,  and  local.  It  is  especially 
necessary  where  the  state  leans  at  all  heavily  on 
that  tax.  Equalization  of  assessments  after  the 
assessment  has  been  made  is  a  failure  every- 
where. Just  as  a  post-audit  is  of  about  as  much 
use  as  "  locking  the  barn  door  after  the  horse 
has  been  stolen,"  so  is  a  post-assessment  equaliza- 
tion. Equalization  must  be  made  before  the 
assessment  is  made  or  while  it  is  being  done.  In 
that  way  it  has  all  the  advantages  of  a  pre-audit. 

Where  the  second  line  of  reform  has  been  in- 
augurated or  where  the  state  has  acquired  a  large 
amount  of  independent  revenues  the  control  of 
the  local  assessments  is  not  so  necesaary.  But, 
nevertheless,  there  is  no  surer  way  of  securing 
good  and  inexpensive  assessments,  even  for  local 
purposes  alone,  as  under  central  control,  if  that 
control  be  of  the  right  kind.  There  are  always 
certain  classes  of  property,  like  railroads,  not 
easily  assessable,  save  by  some  unit  rule ;  that 
is,  by  assessing  the  whole  system  as  a  unit,  not 
piece  by  piece  in  each  town,  or  which  can  only 
be  assessed  well  by  a  body  or  officer  more  power- 
ful than  a  local  assessor.  Moreover,  there  are 
sound  reasons  arising  from  the  close  economic 


Receipts  and  Expenditures  143 

relationships  which  exist  between  all  communi- 
ties in  the  same  state,  why  it  is  desirable  to  have 
the  tax  laws  uniformly  administered  in  the  same 
way  in  every  city  and  in  every  county.  Too 
much  "  home  rule  "  may  mean  too  much  rivalry 
in  tax  abatements ;  tax  wars,  as  it  were,  may 
arise  between  sister  communities. 

Central  control  is,  also,  in  the  line  of  economy. 
If  assessments  are  really  uniform  there  would 
be  no  need  of  having  a  city  assessor  to  assess 
property  already  once  assessed  by  a  county  as- 
sessor. Lastly,  no  local  assessor  is  so  able,  or 
so  skilled,  that  he  cannot  benefit  by  instruction 
and  help  from  a  central  body  with  an  outlook 
broader  than  his.  The  taxpayer  also  gains  by 
having  an  administrative  court  of  appeal. 

States  with  a  strong  central  tax  commission, 
composed  of  three  men,  appointed  for  long  terms, 
changing  but  slowly  in  personnel,  and  well  paid, 
have  gained  much. 

The  chief  gain  has  been  in  wiping  out,  or  re- 
ducing, inequalities  and  reaching  the  "tax 
dodger."  But  incidental  gains  have  been  numer- 
ous. Among  others  the  commission  becomes  an 
advisor  to  the  legislature,  and  enables  that  body 
to  keep  its  tax  system  apace  with  the  changes  of 
the  times. 

Separation  of  State  from  Local  Taxation 

The  essence  of  this  remedy,  is  to  increase  the 
state's  independent  revenues  so  that  it  will  not 
have  to  lean  heavily,  if  at  all,  upon  the  general 


144  Government  Finance 

property  tax,  or  at  least  not  upon  certain  parts 
of  that  tax  which  seems  particularly  adapted  to 
local  use. 

As  it  has  been  worked  out,  so  far,  in  certain 
states,  it  amounts  to  little  more  than  selecting 
certain  classes  of  property  which  are  not  easily 
taxable  locally,  or  which  in  the  nature  of  things 
cannot  bear  the  heavy  tax  rates  which  fall  on 
real  estate,  and  taxing  these  for  state  purposes 
only. 

It  is  not  a  radical  or  final  remedy,  so  far  as  it 
has  been  worked  out.  It  evades,  rather  than 
solves,  the  difficult  question  of  equalization. 
Where  it  has  not  grown  up  without  conscious 
guidance,  as  it  did  in  some  eastern  states,  it  has 
come  because  of  the  difficulty  of  settling  in  any 
other  way  the  division  of  certain  taxes,  such  as 
those  on  railroads  and  the  like  among  different 
communities.  The  presence  of  a  great  city  in  a 
state  otherwise  mainly  rural  gives  rise  to  tax 
difficulties  which  are  greatly  lessened  under  sepa- 
ration. 

Separation  is  not  a  remedy  that  can  be  suc- 
cessfully worked  out  in  many  states  unless  it 
goes  far  beyond  anything  yet  tried.  In  Ken- 
tucky, for  example,  there  is  not  enough  segre- 
gateable  property  to  support  the  state  at  the 
state's  present  scale  of  expenditures.  The  selec- 
tion of  property  for  state  taxation  cannot  be 
arbitrary,  it  must  be  logical  and  must  go  by 
clearly  distinguishable  classes.  The  segregateable 
classes  are,  in  the  main,  public  utilities,  banks. 


Receipts  and  Expenditures  145 

insurance  companies,  franchises,  and  money  and 
credits.  If  these  are  fairly  uniformly  distributed 
throughout  the  state  there  is  no  great  gain  in 
segregation.  But  central  assessment  is,  never- 
theless, imperative.  If  they  are  not  uniformly 
distributed,  if  some  counties  or  localities  get  too 
much  of  the  taxes  thereon,  it  would  be  well  to 
segregate  them  for  state  tax  purposes  only. 

But  separation,  in  current  form,  but  not  in  its 
final  form,  brings  its  own  difficulties.  There  is 
always  a  popular  desire  to  know  whether  the 
taxes  on  the  segregated  classes  of  property  are 
"  equal  "  to  the  taxes  on  the  nonsegregated  classes 
of  property.  By  "  equal,"  the  average  man  means 
"  equal  in  proportion  to  property  value."  This 
demand  is  sometimes  logical,  but  more  often  not 
so.  Cearly,  money  and  credits  cannot  afford  to 
pay  two  per  cent  in  taxes,  and  experience  shows 
that  they  cannot  be  made  to  do  so.  No  other 
test  of  equality  of  burden  satisfies  the  people, 
and  unrest  arises.  Where,  as  in  New  York  and 
Pennsylvania,  the  segregation  was  made  long  ago, 
such  questions  are  not  so  often  raised. 

Another  universal  difficulty  is  that  such  a  tax 
system  in  present  form  is  not  "  elastic."  The 
revenues  go  up  or  go  down  regardless  of  needs. 
The  legislature  finds  this  particularly  trouble- 
some. When  an  ambitious  legislator  is  told  that 
he  cannot  have  money  for  his  pet  scheme  because 
the  party  leaders  will  not  stand  for  an  increase 
in  the  tax  rate,  he  has  perforce  to  be  content. 
But  when  he  learns  that  he  cannot  have  it  be- 


146  Government  Finance 

cause  the  revenues  from  the  state's  segregated 
taxes  are  not  sufficient,  he  has  an  incHnation  to 
change  the  system,  or  —  more  Hkely  —  he  says, 
"  let  the  corporations  pay  more,"  and  moves  to 
raise  the  rates,  justly  or  unjustly. 

It  has  been  urged,  although  it  is  not  supported 
by  satisfactory  evidence,  that  separation  leads 
to  extravagance,  since  the  wholesome  restraint 
of  a  rising  tax  rate,  falling  on  the  legislator's 
constituents,  is  removed. 

Classification 

While  classification  does  not  necessarily  mean 
any  definite  form  of  separation,  yet  in  purpose 
it  is  partly  the  same,  hence  it  is  considered  here 
although  it  might  just  as  well,  perhaps,  have  been 
discussed  under  administrative  reform. 

Classification  means  that  different  methods 
shall  be  applied  to  dififerent  subjects.  Professor 
Ely  recently  said  that,  "  there  is  no  greater  in- 
equality than  the  equal  treatment  of  unequals." 
Equal  amounts  of  dififerent  kinds  of  property 
do  not  have  an  equal  but  a  very  unequal  power 
of  paying  taxes.  A  two  per  cent  tax  on  saving 
accounts  yielding  four  per  cent  is  not  "equal" 
to  two  per  cent  on  a  gold  mine. 

So  far  as  yet  worked  out  classification  means 
one  of  two  things:  (i)  It  may  mean  that  a  dif- 
ferent tax  rate  shall  be  applied  to  some  one  class 
of  property,  or  a  different  rate  to  each  of  several 
classes  —  the  classes  thus  selected  are  mortgages. 


Receipts  and  Expenditures  147 

money,  credits,  and,  sometimes,  stocks  and 
bonds;  (2)  it  means  that  different  classes  of 
property  are  to  be  assessed  for  taxation  at  dif- 
ferent ratios  of  assessed  to  true  value.  Minne- 
sota has  this  form  of  classification  as  follows : 
All  property  is  divided  into  four  classes  and  each 
is  assessed  at  a  different  fraction  of  true  value. 
Class  one,  is  iron  ore,  assessed  at  fifty  per  cent ; 
class  two,  household  goods,  wearing  apparel,  and 
other  items,  twenty-five  per  cent ;  class  three,  live 
stock,  agricultural  products,  and  the  like,  thirty- 
three  and  one-third  per  cent ;  class  four,  all  other, 
mainly  real  estate,  forty  per  cent.  But  money 
and  credits  are  also  "  classified  "  in  Minnesota  by 
the  other  method,  in  that  they  pay  a  low  tax  rate. 
The  danger  in  classification  is  that  it  may  be 
whimsical.  It  is  hard,  especially  when  fractional 
values  are  used,  to  make  it  logical.  Some  classes 
are  selected  because  "  public  sentiment  "  demands 
a  high  tax  rate  thereon.  Politics,  in  the  sense  of 
currying  favor,  can  easily  enter  into  the  making 
of  the  classes. 

Independent  State  Taxes 

Sound  administration  is  necessary  in  any  event. 
Separation,  in  the  forms  now  in  use,  may  palliate 
many  evils,  where  the  people  are  not  ripe  for  far- 
reaching  and  radical  reform.  But  the  only  real, 
final,  and  broad,  statesmanlike  solution  I  can  see 
for  the  problem  presented  by  the  rapid  growth 
of  government  expenses  is  nezv  state  taxes.  In 
short,  a  real  "  separation." 


148  Government  Finance 

These  new  taxes  should  be,  in  the  main,  state 
taxes.  ReHeved  of  the  state  tax  the  general 
property  tax,  properly  administered,  would  afford 
resources  sufficient  for  the  county,  local,  and  city 
needs,  for  a  long  time  to  come,  and,  supple- 
mented by  local  licenses,  will  afford  all  the  rev- 
enues that  the  cities  can  legitimately  require.  If 
the  state  secures  revenues  from  new  sources,  not 
from  fractions  of  the  old,  it  can  continue  its  de- 
velopment. If  not,  it  must  thrust  more  and  more 
duties  down  upon  the  lower  branches  of  govern- 
ment, where  they  cannot  be  so  sucessfully 
handled. 

So  far,  the  only  marked  step  in  this  direction 
is  the  adoption  of  the  inheritance  tax.  This  it 
will  be  observed  is  not  a  part  of  the  old  property 
tax,  chipped  off  for  the  state.  It  is  exclusively 
the  state's  revenue.  The  localities  cannot  add  to 
it  any  surtaxes.  The  state  may  set  apart  some 
of  the  receipts  from  the  inheritance  tax  for  local 
schools.     But  that  is  spending  not  taxing. 

Of  the  forty-eight  states  only  nine  do  not  now 
have  an  inheritance  tax.  Fifteen  tax  only  col- 
lateral inheritance.  Twenty-four,  or  just  half, 
tax  both  direct  and  collateral  inheritance.  In 
1902  there  was  no  inheritance  tax  in  twenty- three 
states  or  nearly  half  as  against  nine  today.  In 
1902,  sixteen  states  taxed  collateral  inheritance 
only,  against  fifteen  today.  All  along  the  line  the 
rates  of  this  tax  have  been  raised  and  exemptions 
have  been  reduced. 

There  are  interesting  questions  in  regard  to 


Receipts  and  Expenditures  149 

the  inheritance  tax.  One  of  them  is,  whether 
the  money  collected  should  be  regarded  as  spend- 
ing money,  or  whether  it  should  be  hoarded  and 
invested,  so  as  not  to  reduce  society's  capital  ac- 
cumulations. But  these  we  have  no  space  to  dis- 
cuss. 

Among  the  other  independent  state  revenues 
are  many  which  are  merely  parts  of  the  general 
property  tax  set  aside  for  the  state,  but  there  are 
a  few  which  interfere  but  very  little  with  the  field 
of  local  taxation. 

The  state  poll  tax  is  one  of  the  latter.  But 
poll  taxes  are  gradually  being  given  up,  despite 
their  merits  when  combined  with  other  taxes. 

Taxes  on  insurance  companies,  based  on 
premiums,  may  be  classed  as  very  appropriate 
state  taxes. 

In  New  York,  some  of  the  "  franchise  "  taxes 
on  general  corporations  which  have  been  in  force 
a  long  time  seem  to  interfere  to  but  a  small 
degree  with  the  customary  local  property  taxes. 
The  same  is  true  of  the  New  York  "  organiza- 
tion "  tax  on  domestic  companies,  and  the 
"  license  tax "  on  foreign  corporations  in  that 
state.  Massachusetts,  in  retaining  for  state  pur- 
poses that  part  of  her  tax  on  the  shares  of  stock 
in  corporations  which  is  assessed  on  shares  not 
owned  in  the  state  ;  Connecticut  with  her  "  choses 
in  action"  tax;  Pennsylvania  with  her  system  of 
state  corporation  taxes ;  Rhode  Island's  selected 
list,  cited  above,  and  a  number  of  other  peculiar 
cases,  may  all  be  cited   as  examples  of   inde- 


150  Government  Finance 

pendent  state  taxes,  not  especially  related  to  the 
general  property  tax. 

Mortgage  registry  taxes  and  taxes  at  reduced 
rates  on  money  and  credits  are  excellent  sources 
of  state  revenue. 

Licenses  levied  on  professions,  numberless 
fees,  of  which  corporation  charter  fees  are  im- 
portant, taxes  on  express  companies  and  car  com- 
panies which  have  never  been  successfully 
reached  by  local  assessment,  and  other  numerous 
but  miscellaneous  revenues  are  all  small  glean- 
ings from  the  cut-over  field. 

Shares  in  local  business  licenses,  in  liquor 
licenses  and  the  like  do  not  promise  any  final 
solution  of  the  need  for  state  revenues. 

On  the  other  hand  where  we  find  "  separation  " 
after  the  type  of  California,  Wisconsin,  and 
Minnesota,  we  have  a  more  or  less  distinct  inva- 
sion of  the  field  of  the  local  general  property  tax. 
This  is  especially  so  when  public  utilities  and 
banks  are  made  the  source  of  state  revenues. 
Taking  them  for  state  taxation  removes  them 
from  the  local  rolls. 

As  the  states  are  barred  from  the  field  of  in- 
direct taxes  by  the  preemption  of  these  for  the 
Federal  Government,  there  are  but  few  avenues 
of  relief. 

The  most  promising  of  these  is  a  state  income 
tax. 

There  is  a  certain  logical  order  of  taxes  result- 
ing from  the  division  of  government  into  federal, 
state,  and  local.     That  order  is :  indirect  taxes  for 


Receipts  and  Expenditures  151 

the  federal  government,  with  an  income  tax  for 
great  emergencies ;  income  and  inheritance  taxes 
for  the  states;  general  property  taxes  for  the 
counties,  districts,  towns,  and  cities. 

Just  as  the  appropriation  of  the  inheritance 
tax  by  the  state  put  an  end  to  the  proposal  for 
a  federal  inheritance  tax,  so  the  general  use  by 
the  states  of  the  income  tax  may  be  expected 
to  have  the  effect  of  limiting  its  use  by  the  fed- 
eral government  to  grave  emergencies.  Beyond 
this  one  case  of  over-lapping  we  would  have 
three  distinctly  clear  fields.  Each  branch  of 
government  would,  under  this  plan,  be  using  the 
kind  of  tax  it  is  best  fitted  to  administer;  also, 
the  taxes  of  the  different  branches  would  fall  on 
those  subjects  in  each  case  which  benefit  most  by 
the  activities  of  the  taxing  power.  Thus,  the 
federal  taxes  would  fall  on  trade,  its  special 
sphere ;  the  state  income  and  allied  taxes  on  per- 
sons, whose  rights  arc  the  states'  care ;  the  local 
taxes  on  property,  which  benefits  directly  by  local 
activities.  The  federal  indirect  taxes  can  be 
easily  made  adequate  to  its  needs,  a  reasonable 
arrangement  of  income  tax  rates  would  cover  the 
needs  of  the  state,  and  with  the  state  ad  valorem 
tax  out  of  the  way  the  general  property  tax  would 
be  sufficient  for  the  cities  and  counties. 

A  state  income  tax  can  be  made  to  tax  sources 
of  public  revenues  not  now  reached,  and  would 
fall  on  ability  to  pay  which  does  not  now  assist. 

Some  of  the  revenues  now  derived  by  the 
states  independent  of  the  general  property  tax 


152  Government  Finance 

would  fit  into  an  income  tax.  In  states  like  Cali- 
fornia, Minnesota,  Wisconsin,  Pennsylvania, 
New  York,  Connecticut,  and  others,  which  have 
a  large  degree  of  separation,  the  best  part  of  the 
existing  system  would  drop  into  place  in  an  in- 
come tax  very  readily. 

Although  seven  states  have  income  tax  laws 
on  their  statute  books  only  one  state,  today,  has 
an  income  tax  that  is  effective  as  a  revenue  meas- 
ure, that  is  Wisconsin.  But  even  there  it  is  a 
I>artial  substitute  for  the  personal  property  tax 
and  is  interwoven  with  the  general  property  tax. 

It  seems  hardly  possible  to  blend  an  income 
tax  with  a  property  tax.  It  takes  a  great  deal 
of  constant  shaking  to  keep  oil  and  water  mixed, 
even  as  an  emulsion.  So  it  takes  a  great  deal 
of  agitation  to  keep  the  "oil  of  the  income  tax" 
emulsified  with  the  "  water  of  the  property  tax  " 
and  they  will  never  make  a  true  compound.  The 
better  way  is  to  put  the  "  oil "  in  one  bottle  and 
the  "  water  "  in  another.  Use  the  income  tax  as 
a  state  tax,  the  property  tax  as  a  local  tax ! 

The  complaint  one  hears  from  Wisconsin  is 
that  the  man  who  pays  on  his  land  thinks  that  he, 
who  pays  the  income  tax  alone,  on  income  from 
a  like  amount  in  value  of  personal  property,  pays 
too  little.  This  is  a  false  issue,  but  it  is  enough 
to  threaten  the  permanence  of  the  tax.  But  if 
the  income  tax  were  wholly  by  itself  as  a  state 
tax,  and  the  property  tax  by  itself  as  a  local  tax, 
and  if  no  question  of  fitting  the  one  into  the  other 
were  raised  by  the  procedure,  the  people  would 


Receipts  and  Expenditures  153 

soon  come  to  consider  them  as  separate  taxes, 
each  standing  on  its  own  bottom.  There  is  no 
necessity  for  making  the  state  tax  "  equal "  to 
the  local  taxes  any  more  than  there  is  to  make 
the  taxes  in  New  York  equal  to  those  in  Buffalo. 

The  objections  to  the  income  tax  commonly 
raised  in  the  United  States  in  the  past  have  been 
very  serious.  They  are  much  less  important  to- 
day than  they  were,  even  a  few  years  ago.  The 
most  potent  have  been :  ( i )  that  it  is  undemo- 
cratic and  un-American,  in  that  it  is  too  inquisi- 
torial ;  (2)  that  it  cannot  be  administered  equita- 
tily ;  (3)  that  it  is  enough  to  tax  the  property, 
which  is  the  source  of  the  income. 

The  author  once  held  these  objections  to  be 
conclusive  against  the  income  tax  in  the  United 
States.  He  has  changed  his  mind  in  view  of  the 
changed  conditions. 

Practical  experience,  as  a  tax  administrative 
official,  has  shown,  to  the  author's  satisfaction, 
that  the  American  taxpayer  with  very  few  excep- 
tions is  willing  to  pay  his  fair  share  of  taxes. 
When  property  is  concealed,  it  is  generally  such 
classes  of  property  as  cannot  possibly  bear  the 
heavy  tax  rates  imposed.  The  Wisconsin  com- 
missioners confirm  this  view.  Inquisition  is  al- 
ways resented.  But  inquiry,  honestly  and  ob- 
viously directed  solely  to  ascertaining  the  facts 
necessary  to  apportion  the  taxes  equally,  is,  far 
from  being  resented,  almost  universally  wel- 
comed. Twenty  thousand  corporations  are 
taxed  each  year  in  California  on  their  franchises. 


154  Government  Finance 

The  data  necessary  to  make  the  assessment  in- 
clude many  intimate  details  of  a  private  business 
character.  Yet  they  are  always  furnished,  as 
soon  as  it  is  understood  that  they  are  to  be  used 
for  equalizing  the  assessments. 

No  income  tax  can  be  successfully  assessed  by 
the  administrative  machinery  of  taxation  which 
we  have  had  in  the  past.  It  is  not  enough  to  pass 
a  law  and  leave  it  to  township  or  other  local 
assessors  to  administer.  But  the  necessary 
machinery  of  administration  can  be,  and  in  some 
cases  has  been,  created.  Wisconsin  has  done  it 
for  the  income  tax  itself,  and  has  succeeded  even 
in  the  face  of  the  adverse  circumstances  referred 
to  above.  Other  states  have  done  it  for  other 
taxes,  harder  to  administer  even  than  an  income 
tax.  A  strong  central  taxing  board  does  not  be- 
come a  bureaucratic  agency  dangerous  to  democ- 
racy. Witness,  to  the  contrary,  a  dozen  strong 
tax  commissions,  not  omitting  the  new  New  York 
City  Commissioners  of  Taxation  and  Assessment. 
It  is  not  the  strength,  or  power,  given  to  such 
commissions  that  is  the  danger,  but  they  are  a 
menace  if  too  weak.  In  several  states  where  they 
have  been  too  weak,  or  have  had  too  little  work 
of  importance  to  do,  they  have  succumbed  to  too 
much  politics. 

An  income  tax  is  easier  to  enforce  than  the 
personal  property  tax.  If  a  man  returns  his  sav- 
ings bank  account  which  yields  him  four  per 
cent,  he  may,  in  some  states,  have  to  pay  a  tax 
of  two  per  cent  on  the  principal  or  one-half  the 


Receipts  and  Expenditures  155 

income.  But  if  he  returns  the  income  and  the 
tax  is  five  per  cent  thereon,  he  has  three  and 
eight-tenths  per  cent  left  of  the  four  per  cent.  In 
this  case,  the  personal  property  tax  is  confisca- 
tory, the  income  tax  is  not. 

Theoretically,  the  income  tax  is  superior  in 
justice  and  equity  to  any  other  tax. 

The  form  of  the  income  tax,  best  suited  to  use 
by  the  states,  can  be  but  briefly  suggested :  It 
should  fall  on  all  incomes  from  every  source, 
above  a  fair  subsistence  for  the  family ;  it  should 
be  graduated  for  larger  incomes ;  it  need  not  be 
specially  graduated  for  the  different  kinds  of 
incomes  from  invested  property  —  they  are  cov- 
ered by  other  taxes ;  so  far  as  possible  it  should 
be  stopped  at  the  source ;  it  should  be  adminis- 
tered by  a  central  board  through  their  own 
appointed  agents.  In  each  state  the  details  would 
have  to  be  adjusted  to  prevailing  local  traditions 
and  industries.  In  many  states  it  will  be  neces- 
sary to  amend  the  constitution  before  an  income 
tax  can  be  introduced. 


REFERENCES 

GENERAL  TREATISES 

Adams,  H.  C.    Science  of  Finance.     Henry  Holt  & 

Company,  1899. 
Bastable,  C.  F.     Public  Finance.     The   Macmillan 

Company,  1895.  . 
Bullock,  C.  J.  Selected  Readings  in  Public  Finance. 

Ginn  &  Co.,  1906. 
Daniels,  W.  M.  Elements  of  Public  Finance.  Henry 

Holt  &  Company,  191 1. 
FiLLEBROWN,   C.   B.     Taxation.     A.   C    McClurg  & 

Co.,  1914. 
Kennan,    K.    K.      Income    Taxation.      Burdick    & 

Allen,  1910. 
Plehn,  Carl   C.     Introduction   to  Public  Finance. 

The   Macmillan   Company,    1910. 
Seligman,  E.  R.  a.     The  Income  Tax.     The  Mac- 
millan Company,  1914. 

FEDERAL  REPORTS 

Treasury  —  Annual   Reports  —  Finance. 
President's  Commission  on  Economy  and  Efficiency, 

House  Documents,  62nd  Congress,  2nd  Session, 

Numbers  854,  458. 

STATE  AND  LOCAL  REPORTS 

Only  the  largest  libraries  make  complete  collections 
of  the  state  and  municipal  reports,  but  the 
census   reports  are  available   everywhere. 


158  References 

Bureau  of  the  Census.  Abstract  of  special  bulletins, 
Wealth,  Debt,  and  Taxation,  1913.  Government 
Printing  Office,  1915. 

Note :  Beginning  on  page  7  of  the  above  re- 
port is  a  list  of  the  publications  of  the  census, 
referring  to  government  finance.  These  publi- 
cations bring  down  to  date  the  data  in  the 
volume  of  the  Twelfth  Census,  Wealth,  Debt, 
and  Taxation,  1902. 

Bureau  of  the  Census.  Financial  Statistics  of  Cities. 
Published  annually. 

TAX   COMMISSIONS   AND  THE  LIKE:   OLDER 
REPORTS 

Ely,  R.  T.  Taxation  in  American  States  and  Cities. 
Thomas  Y.  Crowell  Company,  1888. 

Chapman,  J.  W.,  Jr.  State  Tax  Commissions  in 
the  United  States.  Johns  Hopkins  University 
Studies.    Vol.  XV,  1897. 

Seligman,  E.  R.  a.  Essays  in  Taxation.  Eighth 
edition.  The  Macmillan  Company,  1913.  Chap- 
ters XIX,  XX,  XXI,  and  special  biography. 

SIGNIFICANT  RECENT  REPORTS 

Kentucky.     Special  Tax  Commission,  1913. 
Connecticut,      Massachusetts,      Minnesota,      Rhode 

Island,  and  Wisconsin.    Regular  annual  reports 

of  the  Tax  Commissions. 

DISCUSSIONS  AND  PAPERS 

Proceedings  of  the  Annual  Conferences  of  the 
National  Tax  Association.  15  Dey  Street,  New 
York. 


INDEX 

Administration,  reform  of  tax,  141-143 

Agriculture,  federal  aid  to,  36;  State  aid  to,  49 

Aldermen,  70 

Aldrich,  Senator,  quoted,  96 

Allentown,  84 

Apportionment  of  expenditures,  104 

Art  galleries,  9,  69 

Assessment  districts,  141 

Assessors,  131-133,   143 

Atlantic  City,  84 

Auditor,  State,  99 

Austria-Hungary,  debt  of,  44,  45 

Averages,  meaning  of  in  city  costs,  83 

Baltimore,  84 
Birmingham,  Ala.,  84 
Bonds,  public,   15 
(See  also  Debt) 
Borrowing,   public,   106-I15 
Boston,  58,  83,  112 
Bridges,  city  toll,  87 
Budget,  97-100 
Bullock,  C.  J.,  quoted,  27 
Burden  of  federal  government,  26 
Business  taxes,  126 

California,    debts,    iii;    expenditures,    52-56;    revenues, 
124,  125;  tax  burden  in,  137 

Canals,  9,  36 

Cemeteries,  87 

Central  control  of  local  expenditures,  64;  of  local  taxa- 
tion, 64,  142 

Central  tax  commission,  141 

Census  bureau,  20,  24,  48,  68,  87,  88 

Cities,  expenditures  of,  47-51 
•(See  also  Municipal) 


i6o  Index 


Charlotte,  84 

Charities,  9,  50,  69,  76 

China,  campaign  in,  34 

Choses  in  action  tax,  149 

City  assessors,  143 ;  expenses,  69-95 ;  growth  of  expen- 
ditures, 79-83;  manager,  71 

Civilization  and  taxes,  7 

Civil  service,  100;  federal  commission  of,  30 

Civil  war,  cost  of,  34 

Classification  of  tax  subjects,  140,  146,  147 

Commission  on  economy  and  efficiency,  28 

Commission  form  of  city  government,  70 

Compulsory  revenues,  36 

Congress,  cost  of,  29 

Connecticut,  149 

Consular  service,  36 

Cost  of  government,  20-24;  cities,  86,  94;  estimate  of,  21; 
federal,  22 ;  in  Minnesota,  22 

Cost  of  war,  history  of  in  United  States,  33,  34 

Cost  to  tax-payers,  defined,  21 

Cost,  meaning  of,  21 

Constructive  police  work,  72 

Controller,  99 

Consumption,  3,  4 

Control,  boards  of,  48,  100-102 

Corporations,  bureau  of,  35 

Corrections,  76 

Council,  city,  70 

Counties,  expenditures  of,  47,  48;  revenues  of,  130-133 

Courts,  federal,  35 

Crematories,  87 

Crown,  cost  of  in  Great  Britain,  30 

Cubberly,  Prof.,  quoted,  62 

Customs,  118 

Debt,  making  rules  for,  108 

Debt,    public,    106-115;    concealed,    no;    federal,   42-45; 

local,   109;   of   different  nations,  44-45;  purposes   of, 

III ;  term  of,  114 
Denver,  84 
Distribution,  3 
District  of  Columbia,  37 
District,  road,  63;  schools,  62 
Docks,  city,  87 


Index  i6i 


Donations,  3 
Dresden  china,  10 

Earnings  of  public  enterprises,  116 

Economics  of  government,  6-19 

Education,  62;  bureau  of,  31;  municipal,  jy;  state  aid 

to,  49 

(See  also  Schools) 
Efficiency  and  economy,  96-105;    federal,  40;   in  cities, 

102-104 
Elasticity  of  revenues,  41 
Elections,  cost  of,  70 
Electric  plants,  9,  87,  90 
Eliot,  Ex-Pres.,  quoted,  15-17,  72 
Elliott,  Prof.,  quoted,  62 
Ely,  R.  T.,  quoted,  146 
Equalization,  142 
Equal  taxation,  145 
Escheats,  117 
Established  church,  10 
Evolution  of  public  business,  6 
Excises.  118 
Expenditures,    5,   20;    cities,   47-51;    gross    defined,   22,', 

local,  62-65;  municipal,  66-95;  of  counties  and  minor 

civil  divisions,  47,  48;   state,  47-65 
Expenses,  city  departmental,  81 

Fall  River,  59 

Federal  activities,  scope  of,  37-40 ;  debt,  42-45 ;  expendi- 
tures, 28;  finances,  25-45;  revenues,  118-122 
Federal  Reserve  Banks,  35 
Fees,  116,  117 
Ferries,  87 
Fines,  117 

Fire  department,  69;  waste,  y^ 
Fisher,  T.,  quoted,  80 
Fishery  service,  36 
Foods  and  drugs,  inspection  of,  35 
Forestry  service,  2i7 
Fractional  assessment,  141 
France,  debt  of  44-45 
Franchise  taxes,  149 
Free  textbooks,  19,  79 


I 62  Index 


Garbage,  75 

Garfield,  Pres.,  quoted,  27 

Gas  plants,  87,  90 

General  property  tax,  122,  130,  131 

Geological  Survey,  31 

German  Empire,  debt  of,  44-45 

Gifts,  117 

Gobelin  tapestry,  10 

Government  activities,  13;  organized  effort,  7 

Grand  Forks,  107 

Halls,  public,  87 
Health,  conservation  of,  74 
High  schools,  49 
Highways,  50,  76 
Hospitals,  9,  69,  76 

Illinois,  expenditures  of,  60;  revenues  of,  129 

Immigration  service,  35 

Income  tax,   British,    121;    federal,  41,   120;   state,   150- 

155;  Wisconsin,  152 
Indebtedness,  see  debt, 
Indian  affairs,  office  of,  31 
Indians,  36 

Industrial  accident  boards,  49 
Inheritance  tax,   148 
Interior  department,  31 
Internal  revenues,  41,  118 
Interstate  Commerce  Commission,  35 
Investments,  public,  116 
Irrigation  works,  36 
Italy,  debt  of,  44,  45 

Jails,  63 

Japan,  debt  of,  44,  45 

Justice,  department  of,  34 

Kansas,  102 

Kentucky,   expenditures   of,   56,   57;    revenues   of,   125; 
tax  burden  in,  137;  tax  report  quoted,  132 

Labor  bureaus,  35,  49 
Land  office,  31 
Laundries,  75 
Libraries,  69 


Index  i6t, 


Licenses,  ii8,  126,  150 

Life-saving,  35 

Lighthouses,  35 

Lighting,  9 

Local  expenditures,  62-65 ;  central  control  of,  64 

Local  revenues,  130 

Local  taxation,  central  control  of,  64,  142 

Los  Angeles,  U2 

Lunch  rooms,  87 

Lowell,  59 

Lynn,  59 

Manufacturers   public  10 

Marine  insurance,  40 

Markets,  87 

Massachusetts,  expenditures  of,  58,  59;  revenues  of,  128 

Mexican  war,  33 

Mines,  bureau  of,  31 

Minnesota,   classification   in,    147;    expenditures   of,   57; 

revenues  of,.  127;  tax  burden  in,  137;  tax  commission, 

22,  28,  137 
Money,  issue  of,  37 
Mortgage  taxes,   150 
Mothers'  pensions,  50 
Mt.  Vernon,  84 
Municipal   costs,   94;    expenditures,  66-95;   outlays,  93; 

revenues,  133-136 
Museums,  9,  69 

National  banks,  43 

Net  cost  to  taxpayers,  23 

New  Bedford,  59 

New  England,  fiscal  system  of,  46 

New  Orleans,  84 

New  York  City,  78,  83,  iii,  112,  139 

New  York  State,  expenditures  of,  59,  60;  revenues  of, 

128;  tax  burden  in,  140 
Newton,  85 
Normal  schools,  49 

Old  age  pensions,  3 
Organization  tax,  149 
Outlay,  defined,  24 
Outlays,  municipal,  93 


I 64  Index 


Patent  office,  31,  36 

Panama  Canal,  29,  36,  40 

Parks,  9,  69 

Payments,  defined,  23 

Peace  and  order,  preservation  of,  32 

Pennsylvania,  149;  constitution  quoted,  27 

Pensions,  bureau  of,  31;  city,  69;  federal,  32;  mothers', 

50;  teachers',  79 
Philippines,  campaign  in,  34 
Police,  69,  72 
Poll  tax,  118,  149 
Poorhouses,  62, 
Post-office,  9,  36 
Postal  savings  bank,  ^7 
Pre-audit,  100 
President,  cost  of  office,  30 
Prisons,  63 

Private  vs.  public  enterprises,  9,  11,  14,  90 
Private  schools,  14,  17 
Privateersmen.  8 

Protection  of  life  and  property,  32,  71-76;  tariff,  119 
Providence,  R.  I.,  52 
Publications,  federal,  2,6 
Public  buildings,  federal,  32 
Public  debt,  federal,  27 

(See  also  Debt) 
Public  enterprises,   13 
Public  health,  federal  care  of,  35 
Public  lands,  2>7 
Public  management  costly,  19 
Public  vs.  private, 

(See  Private  vs.  public) 
Public  printing  office,  30 
Public  purpose,   10 
Public  schools,  14-15 
Public  service  enterprises,  82,  85-93 
Public  utility  commissions,  48 
Public  works,  2>^ 

Railroad  commissions,  48 

Railroads,  private  vs.  public,  11,  12 

Receipts  and  expenditures,  equation  of,  1 16-155;  federal, 

41. 
Receipts,  ten  classes  of,  116 


Index  165 


Reclamation  service,  31 

Reformatories,  63 

Reform  of  taxation,  140,  141 

Regulation,  10;  in  California,  53;  of  industry  and  com- 
merce. 35;  of  railroads,  12 

Regulative  police  work,  72 

Religion,  10 

Revenues  below  expenses,   136 

Revenues,  problem  of,  2 

Revenues    (See  Federal,  State,  Local,  Municipal) 

Revolutionary  war,  33 

Rhode  Island,  expenditures  of,  51,  52;  revenues  of, 
123,  124 

Rivers  and  harbors,  36 

Roads,  9 

Road  districts,  63 

Robinson,  E.  V.,  quoted,  22,  28,  57 

Russia,  debt  of,  44,  45 

Safety,  public,  federal  cost  for,  35 

Salaries,  teachers,  78 

San  Diego,  85 

San  Francisco,  1 12 

Sanitation,  35,  69,  75 

Schools,  9,  49,  62,  63.  69,  77 

School  districts,  62.   106 

Scientific  research,  36 

Seattle,   no,   112 

Segregation,  144 

Scligman,  on  income  tax,  118 

Separation,  140,  143-146 

Service,  aim  of  government,  14 

Sevres  ware,  10 

Sewers,  75 

Single  tax,  138 

Smith.  Adam,  32 

Socialists,  i 

Southern  states,  fiscal  system  of,  46 

Spanish  war,  cost  of,  34 

Special  assessments,  no,  n8 

Springfield,  59 

State  activities,  growth  of.  47;  sphere  of.  39 

State  and  local  finance,  46-65 

State  expenditures,  47-65 


I 66  Index 


State  functions,  48 

State  income  tax,  150,  155 

State  revenues,  122-130;  examples  of,  123 

State  rights,  38 

State  taxes,  independent,  147-155 

Steamboat  inspection,  35 

Streets,  69,  j6 

Street  car  service,  9,  87,  90 

Subventions,  117 

Taft,  Pres..  commission  on  economy  and  efficiency,  28 

Taft,  Pres.,  quoted,  97 

Tariff,  41 

Tax  administration,  141 

Tax  commissions,  48 

Taxes,  116;  defined,  117;  direct  and  indirect,  118 

Tax  limit  law,  5 

Tax  reform,  4,  140,  141 

Textbooks,  free.  79 

Trade  promotion,  36 

Transfers,  21 

Tribal  religion,  7 

Treasury  department,  federal.  31 

Unearned  increment,  138 
Uniform  accounts,  104 
Uniformity  of  taxation,  143 
United  Kingdom,  debt  of,  44,  45 
United  States,  debt  of,  44,  45 

(See  Federal) 
Universities,  state,  49 
Utopians,  i 

War,  cost  of  to  United  States,  32 

War  of  1812,  33 

Washington,  D.  C,  83 

Water  works,  9,  17.  18,  88.  113 

Wilson,  Pres.,  quoted,  97 

Wisconsin,  56;  income  tax,  152;  tax  burden  in,  137 

Worcester,  59 


This  book  is  DUE  on  the  last  date  stamped  helow 

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